Earning a living wage.

Great Debates
421

[QUOTE=gonzomax]
Productivity has been skyrocketing the last few years.
[/QUOTE]

World wide? Regardless…enough to provide a living wage for everyone in the world? In the US? In New Mexico? In Santa Fe? You make sweeping claims that are, when examined, meaningless.

[QUOTE=gonzomax]
Many articles have pointed out that more has been done with less people.
[/QUOTE]

True…automation does this, increased productivity does this. Never disputed it. So? I’m assuming your intent here is that, since productivity is ‘skyrocketing’, and since it takes less people to do that work, your great plan is to take that productivity and give it, unearned, to all the people out there who aren’t producing as well as those who are. This has been tried before you know…how’d hat work out btw?

[QUOTE=gonzomax]
The jump in profits has simply gone to the top. Wages have stagnated or dropped.
[/QUOTE]

Not that it really matters, but feel free to cite this over, say, the past 4 decades. Please provide a reputable cite from a trusted economic source while you are at it, perhaps with some trend analysis wrt wages vs cost of living, and standard of living in the US. If you are feeling froggy, you could relate that to similar trends in, say, Europe over the same time periods so we can get some perspective. Thanks in advance, I’m SURE you’ll (for once) respond with an indepth and meaningful post chocked full of good information…with a soft nugget center. :stuck_out_tongue:

-XT

422

[QUOTE=kawaiitentaclebeast]
Why won’t anyone answer my question? :confused:
[/QUOTE]

I’ll take a guess, since I think you’re referring to if capital expenditure has been factored into the statistic. In general, productivity measurements are as simple as one can make it: X worker produced Y units this year. If this ratio changes to allow less workers and more units, then economists will say productivity has increased. Why? An actual accounting isn’t taken, but instead a survey is given. Counting the number of workers and the number of units produced is easy compared to finguring out why this happened. So a survey is sent or taken and firms explain why they are more productive (for public companies, they often state this in their quarterly report or you can gleam the numbers from their quarterly filings based on their capital expenditure.).

423

Thanks. My point (if it isn’t clear enough already) being that a rise in “productivity” could be due to any number of things - Capital expenditures, regulatory enviroment, accounting rules, and NOT due to workers simply working harder/longer. Western workers are much more “productive” than third world workers, but for reasons entirely beyond their individual control.

424

[QUOTE=Opus1]
I don’t think anyone is stating that a living wage would be a disaster.
[/QUOTE]

I was halfway kidding.

I don’t have the same faith in the “free market” that a lot of people seem to have these days. It may be efficient but it is not always equitable.

425

Tompaine.com Some of the rich are enlightened enough to see that decent wages are good for the whole. Not all are short term looters truing to squeeze all they can out. Actually it helps to have people able to buy.

426

[QUOTE=gonzomax]
http://www.tompaine.com/articles/2007/01/09/ford_pay_workers_well.php Some of the rich are enlightened enough to see that decent wages are good for the whole. Not all are short term looters truing to squeeze all they can out. Actually it helps to have people able to buy.
[/QUOTE]

I realize I am going to be sorry for pretending to take your posts seriously, but “hope springs eternal” appeals more to me today than “do not feed gonzomax”.

Your cite mentions this:

Would you like to take a crack at explaining where the money is without a rise in the minimum wage?

Or if you don’t like that one, how about this - if increasing minimum wage a little is good for us all because it pumps money into the economy, wouldn’t it be a good idea to increase the minimum wage to, say, forty dollars an hour, and pump that much more?

Regards,
Shodan

427

[QUOTE=Shodan]
Would you like to take a crack at explaining where the money is without a rise in the minimum wage?
[/QUOTE]

I’ll take a stab. Let’s say your local fast food joint nets a profit of x dollars per week. If the minimum wage was increased and prices not raised, they would make something less, let’s say x-y. That diffierence, y, is reduced corporate profit and increased employee earnings. If the company keeps y, it goes evenually into the hands of shareholders and makes their nest eggs a wee bit fatter. If the employees get y, then they go to the stores and buy goods they otherwise wouldn’t be able to afford. So we take money for those who might spend it eventually and give it to those that will spend it now. This pumps money into the economy, as opposed to pumping it into the bankrolls of the affluent.

428

[QUOTE=BobLibDem]
I’ll take a stab. Let’s say your local fast food joint nets a profit of x dollars per week. If the minimum wage was increased and prices not raised, they would make something less, let’s say x-y. That diffierence, y, is reduced corporate profit and increased employee earnings. If the company keeps y, it goes evenually into the hands of shareholders and makes their nest eggs a wee bit fatter. If the employees get y, then they go to the stores and buy goods they otherwise wouldn’t be able to afford. So we take money for those who might spend it eventually and give it to those that will spend it now. This pumps money into the economy, as opposed to pumping it into the bankrolls of the affluent.
[/QUOTE]
Well, that’s fine, but you skipped over the part where it makes stock holders nest eggs larger. Is that what you are contrasting to the employees’ spending it?

IOW, if the stock holders get the money, they will spend it on one set of things, but if the employees get it, they will spend it on something else. In which case is money not going into the economy?

My point is that the article’s statement is factually incorrect. There is no net change in the amount of money “going into the economy”, and the writer thereof is subject to the usual mistake - that this wage increase is going to come out of thin air. If that were the case, there would be no argument for increasing the MW indefinitely. Hey, free money!

But, in fact, the wage increase does not come out of nowhere. It comes out of the profits of the enterprise in question.

If Joe Paperhat is generating revenue of $8 per hour, and getting paid $7.25, well and good. Then an increase in the MW to, say, $7.95 per hour will not necessarily kick Joe out of a job. It will make the investment of a fast-food restaurant that much less attractive (compared to everything else), and thus make it less likely that fast food restaurants will be opened, and/or push prices for a Happy Meal[sup]TM[/sup] up high enough to make profits for a fast-food place worth taking the risk of opening one (again, compared to everything else). But -

If Joe is currently generating $7.90 per hour in revenue, he is SOL. It makes no economic sense to retain him. And thus, under the laudable intent of giving Joe a raise, you have priced him out of work.

I don’t believe that an increase in the MW will have disastrous effects. Very few people earn MW in America, and very fewer of those are actually supporting a family. And most of those earning MW get an increase over time anyway.

The marginal effect of MW increases tend to be on entry-level MW earners. You have to be worth hiring because you can generate more than MW right off the nail. If you are not, you then are forced to enter the black market for labor, as many illegal immigrants do. Again, you have not really achieved the purported end of increasing wages - merely made what people will do anyway illegal.

Why this is a good idea for labor when it is a bad idea for, say, drugs or prostitution is something not easily explained.

Regards,
Shodan

429

Interesting. Do you have any data on what your typical fast food worker generates for the company? I don’t nor would I know where to look. I doubt that the profit margin is so thin that an increase of $1 per hour is going to be the difference between a positive and negative net worth to the company.

430

Almost by definition it would be more than MW, wouldn’t it?

And (correct me if I am wrong,) I believe McDonald’s and similar are franchise operations, so it would vary wildly by location.

I thought less than 3% of wage-earners in the US made MW, and about half of those were teen-agers and not supporting a family.

Most of the cites I have been able to locate are either from Fast Food Nation, which I haven’t read and therefore can’t judge the accuracy (or lack thereof), or references to a study on New Jersey that purported to find no effect on employment from a MW hike.

This cite seems to disagree. Most of the rest of the cites I found say that the fast-food industry depends on low labor costs and high turnover to maximize profits, if that is what you mean.

Regards,
Shodan

431

[QUOTE=Shodan]
I realize I am going to be sorry for pretending to take your posts seriously, but “hope springs eternal” appeals more to me today than “do not feed gonzomax”.

Your cite mentions this:
Would you like to take a crack at explaining where the money is without a rise in the minimum wage?

Or if you don’t like that one, how about this - if increasing minimum wage a little is good for us all because it pumps money into the economy, wouldn’t it be a good idea to increase the minimum wage to, say, forty dollars an hour, and pump that much more?

Regards,
Shodan
[/QUOTE]

Childishly simple the old trickle down theory which runs in the face of logic and precedence. When poor or middle class get the money it quickly gets back into the economy . It has what my old econ classes said a multiplier effect. Unfortunatelt]y the trickle downers have a clear history of how badly it works. Now for instance.
I would like a reasonable min wage. If you buy 40 I will. Except I dont think it will fly.

432

[QUOTE=gonzomax]
Childishly simple the old trickle down theory which runs in the face of logic and precedence. When poor or middle class get the money it quickly gets back into the economy . It has what my old econ classes said a multiplier effect.
[/QUOTE]
Actually, I was hoping you could explain your position, rather than merely repeat it.

How does a minimum wage hike pump money into the economy that would not be in the economy otherwise?

Please let me know if you don’t understand the question.

Regards,
Shodan

433

[QUOTE=Shodan]
Almost by definition it would be more than MW, wouldn’t it?

And (correct me if I am wrong,) I believe McDonald’s and similar are franchise operations, so it would vary wildly by location.

I thought less than 3% of wage-earners in the US made MW, and about half of those were teen-agers and not supporting a family.

[/QUOTE]

I’m afraid your argument is a bit simplistic. Here’s how you would analyze it - not being in the business, I don’t know what the numbers are.

Say the price of a meal is $5.00. We need to divide that up into fixed costs (rental, franchise fees, advertising, etc.) materials, labor and profit. Say profit for this is 50 cents (probably a bit high), materials are $1, labor is $1 and the fixed cost is $2.50. You compute fixed costs by dividing the actual fixed costs by number of products sold. Say a MW increase changes the labor cost to $1.10. One way of handling this is to cut the profit to 40 cents, a great tragedy to be sure. But say all those people with more money use some of it to buy more burgers, say 10% more. This reduces the fixed cost component by about 10%, or 25 cents in this case. So, the profit actually goes up by 15 cents.

Notice that giving the money to rich people won’t have this effect, since giving me another $1,000 a year won’t increase the number of times I go to McDs a bit. But incremental sales really help the bottom line, and giving higher wages (or tax cuts) to those likely to spend it directly may improve profitability of this kind of business a lot.

As I said I have no ideas of what the real numbers are.

If you think money put into the market is conserved, by the way, maybe you can tell us where the capitalizations from the bubble went to.

434

[QUOTE=Voyager]
I’m afraid your argument is a bit simplistic. Here’s how you would analyze it - not being in the business, I don’t know what the numbers are.

Say the price of a meal is $5.00. We need to divide that up into fixed costs (rental, franchise fees, advertising, etc.) materials, labor and profit. Say profit for this is 50 cents (probably a bit high), materials are $1, labor is $1 and the fixed cost is $2.50. You compute fixed costs by dividing the actual fixed costs by number of products sold. Say a MW increase changes the labor cost to $1.10. One way of handling this is to cut the profit to 40 cents, a great tragedy to be sure. But say all those people with more money use some of it to buy more burgers, say 10% more. This reduces the fixed cost component by about 10%, or 25 cents in this case. So, the profit actually goes up by 15 cents.
[/QUOTE]

Are you trying to make the claim that increasing the cost of hamburgers will cause more people to buy them? That’s a ‘non-traditional’ way of looking at it…

What actually happens when the price goes up is that demand goes down. Getting to your cost analysis before, you have fixed costs and variable costs. If the demand for your burgers goes down, the per-burger portion of your fixed costs goes up, because fixed costs are there no matter how many you sell. So where do you cut back? On variable costs. And what are the variable costs? Mostly labor. Not only do you cut the number of staff because of the decrease in sales, but you cut even more because you can no longer maintain the same ratio of staff to burger sales, all else being equal. The end result is fewer workers making slightly more but having to work harder to earn it.

If your argument is that minimum wage people could afford more burgers, and that increasing their salary means they’ll buy more burgers and offset the price increases, then I’m not going to argue that hypothetical, because it’s irrelevant. If the people spend their extra money on burgers, then they’ll cut back on other things that saw their costs go up due to wage inflation. And of course, the 97% of the population who make more than minimum wage don’t have any extra money. They just see costs of goods going up in industries that rely on minimum wage employees, so they buy less of those goods - result: Fewer jobs for minimum wage employees.

Now, when the minimum wage is only bumped a little, you can’t really see the result through noise in the data. Not because it doesn’t have a negative effect, but because it has almost no effect. Bumping the salaries of 3% of the workers by 10% is just a hard thing to track through the day to day variance in job statistics. But if you increase the wage enough that the effect rises out of the noise floor, you’ll see increased unemployment.

435

[QUOTE=Voyager]
Say the price of a meal is $5.00. We need to divide that up into fixed costs (rental, franchise fees, advertising, etc.) materials, labor and profit. Say profit for this is 50 cents (probably a bit high), materials are $1, labor is $1 and the fixed cost is $2.50. You compute fixed costs by dividing the actual fixed costs by number of products sold. Say a MW increase changes the labor cost to $1.10. One way of handling this is to cut the profit to 40 cents, a great tragedy to be sure. But say all those people with more money use some of it to buy more burgers, say 10% more. This reduces the fixed cost component by about 10%, or 25 cents in this case. So, the profit actually goes up by 15 cents.

[/quote]

This part is not too bad - the idea that you can increase profits overall with increased volume, even if your margin goes down, is true. (Did you notice that you are arguing in favor of the the Laffer Curve, and the Reagan tax cuts? :wink: )

I think the problem with your analysis (besides what Sam Stone points out) is that you are begging the question.

The question was, why does an increase in MW “pump money into the economy” whereas paying dividends to stock holders does not?

You go wrong (IMO) where you posit the following:

You are assuming, IOW, what is under dispute - that money given to rich people doesn’t get spent, or “get pumped into the economy” - it disappears in some way, and thus has no effect on the economy overall, while increased spending due to the MW does not.

The economy is (obviously) not limited to Mickey D’s. If you give more money to teenagers working for MW, they might go to fast-food restaurants more often, although I would expect it to have a greater effect on used cars, movie tickets, and cheap beer sales. But if you give the same amount of money to rich stock holders, it is still spent - on mutual funds, or high-end automobiles, or yachts, or what have you. But notice, of course, that overall the investment in the economy is exactly the same. It just gets spent on different things.

Thus an increase in the MW simply changes demand, from (in our scenario) mutal funds to fast-food meals. It increases labor costs in one sector of the labor market. What you are hoping for is that the increased demand in one segment of the economy will offset the increase in labor costs overall. This is in spite of the fact that it does not create any value at all. In other words, it decreases the perceived value of low end labor, and thus reducing demand.

For your argument to work, you need to prove that rich people hide their money in a hole in the back yard, and that teen-agers and others working for the minimum wage spend it. How you are going to do this, given the self-evident fact that stock holders invest in stocks, thus capitalizing companies and thus investing in productivity rather than buying tasteless hamburgers and cheap plastic trinkets from China, is not clear.

As I have said, I don’t believe an increase in the MW would be catastrophic. Very few workers earn minimum wage, most of those are not supporting a family in any sense, and most age their way into higher incomes anyway. Thus the marginal effects would probably be drowned out and/or difficult to detect in the overall growth of the US economy. But the effects would be real, and the best that that can be hoped for is that they will not do more harm than good. Merely shift the harm around a bit, overall. It is nearly impossible to see how they could do more good than harm. Unless you think an increase in the black market for labor is a good thing, with its comcomitant effects on illegal immigration, tax cheating, etc.

Regards,
Shodan

436

[QUOTE=Shodan]
Actually, I was hoping you could explain your position, rather than merely repeat it.

How does a minimum wage hike pump money into the economy that would not be in the economy otherwise?

Please let me know if you don’t understand the question.

Regards,
Shodan
[/QUOTE]

The money is not necessarily in the economy when the wealthy have it. It could be anywhere including Caimans and European stocks and vacations. The middle class and poor would be liquid and directly into the economy with almost instant effects.
The distinction is clear and effects are well known.

437

[QUOTE=gonzomax]
The money is not necessarily in the economy when the wealthy have it. It could be anywhere including Caimans and European stocks and vacations.
[/QUOTE]

It could be stuffed in their mattresses too, or used to light expensive cuban cigars! Of course it isn’t, for the most part, but don’t let that get in the way of a good (well, maybe not) arguement, ehe gonzo? :stuck_out_tongue:

-XT

438

[QUOTE=Sam Stone]
Are you trying to make the claim that increasing the cost of hamburgers will cause more people to buy them? That’s a ‘non-traditional’ way of looking at it…

What actually happens when the price goes up is that demand goes down. Getting to your cost analysis before, you have fixed costs and variable costs. If the demand for your burgers goes down, the per-burger portion of your fixed costs goes up, because fixed costs are there no matter how many you sell. So where do you cut back? On variable costs. And what are the variable costs? Mostly labor. Not only do you cut the number of staff because of the decrease in sales, but you cut even more because you can no longer maintain the same ratio of staff to burger sales, all else being equal. The end result is fewer workers making slightly more but having to work harder to earn it.

[/quote]

You’ve just shown that you don’t get this by confusing cost and price. The cost of the hamburger indeed went up by 10 cents. If you notice, I did not say the price went up at all. If the burger market is fairly elastic, which seems reasonable, the burger PTB might decide, for the reasons I gave, that holding the price in an environment where their market has more spending money would result in more sales. Even if the price went up, by a nickel, say. you’d have to demonstrate that the decrease in sales from cost would outweigh the increase in sales from the extra purchasing power of the customers. Remember that in this market all competitors would be affected by the increase in the MW, prices would raise in lockstep, if at all, that is, and there would be no loss to the competition. In fact if one competitor decided to hold prices, they would all be forced to. So I don’t accept your simplistic view of what would happen.

I’ve just demonstrated that costs may not go up as much as salaries - costs can be held and margin improve through economies of scale. That’s point one. Point two is that some of the costs will be borne by people who make more than minimum wage. The increase in the price of a Lexus due to the increased salary of someone who sweeps up the showroom is not going to affect MW people at all, while the extra money might help the burger shop.

So if I read you correctly the increase in the MW proposed by the Dems won’t affect unemployment at all. That’s the first financially justifiable thing you’ve said.

439

[QUOTE=Shodan]
This part is not too bad - the idea that you can increase profits overall with increased volume, even if your margin goes down, is true. (Did you notice that you are arguing in favor of the the Laffer Curve, and the Reagan tax cuts? :wink: )

[/quote]

I’m not sure how this relates to taxation policy. That the optimal level of taxation to maximize government revenue lies somewhere between a 0% tax rate and a near 100% tax rate is trivially true. Where that optimimum point lies is somewhere else, and I don’t think there is evidence that Laffer and Reagan were anywhere close to it. Perhaps Clinton was.

I think the problem with your analysis (besides what Sam Stone points out) is that you are begging the question.

The question was, why does an increase in MW “pump money into the economy” whereas paying dividends to stock holders does not?

You go wrong (IMO) where you posit the following:

You are assuming, IOW, what is under dispute - that money given to rich people doesn’t get spent, or “get pumped into the economy” - it disappears in some way, and thus has no effect on the economy overall, while increased spending due to the MW does not.

[/quote]

That’s where your problem is. Not every dollar pumped into the economy has an equal effect on economic growth. Let’s consider the Bush tax cuts, which resulted a very, very slow rate of economic recovery.

A dollar given to a relatively poor person will go into consumption. A dollar given to a rich person will go, very likely, into investment. You might think that is wonderful, but the problem when the bubble burst was that we were over-invested, and had excess capacity. This was the reason for the layoffs, the plant closings, and the writing off of all sorts of inventory. The last thing the economy needed then was more investment. I contend that if the Bush tax cuts were targeted to those who would have used it to consume, the economy would have grown much faster. I was never against cutting taxes then - (though the amount might have been up for discussion) I was against where the cuts were targeted.

There is also the problem of more money chasing the same number of stocks causes stock prices to become unrealistic, but let’s leave it at the investment issue.

440

BTW, would MW increase opponents please post a cite of an example where raising the MW by some reasonable amount caused an increase in unemployment or other disaster? An unreasonable amount would be good also. It is hard to tell the boundary between MW increases lost in the noise, like Sam said, and those that would cause a disaster without this information. The bad effects of the MW seems to be a matter of faith.

Yeah, it is “common sense” but a lot of economics - and now behavioral or experimental economics - shows that people and markets don’t react like they can be simplistically expected to. I’ve recently published a paper (co-authored with my daughter, who does have a degree in economics) showing that a lot of the economic justification for policies appearing in refereed papers makes no sense. The papers are engineering papers, which explains the simplistic economics used.