Social Security is funded from wages once willingly paid by employers to the pensioner, invested to earn more than inflation rate. (And yet despite the inflation adjustment, most SocSec pensioners are paid less than present-day MW workers.)
It may be correct that proposed increases in MW will not increase inflation excessively, but that conclusion does not follow from the SocSec comparison.
Except for those who reject all MW, I may be the only one in the thread to advocate against inflation-indexed MW. Let me explain the case.
First note that if all wages and prices are inflation-indexed, then all price ratios would be locked in. If petroleum increased in price by 10% leading to a 1% CPI hike, then all other prices would rise 1%, leading to a 0.9% CPI hike, a further 0.9% hike in all prices, ad infinitum. This would be absurd, unless you imagine that the prices and wages being locked in were in the correct ratios for all future time.
But, you say, you don’t want to index all prices, just MW. But SocSec is already indexed as are, IIRC, many labor contracts and financial instruments, Wages in the tier above MW will also tend to rise when MW rises. One doesn’t need 100% of prices to be controlled before the above pathology arises.
Free markets, in which prices settle to an equilibrium value on supply/demand curves, are best. Sudden jostling, e.g. the one-time addition or removal of certain rents, can be handled naturally and efficiently by market mechanisms. But throttling or straight-lining the labor supply curve with an ill-advised inflation-indexing are not like that sudden jostling — we’d enter the territory of government planning, not free markets.
The argument that MW is too low is based more on workers’ needs than the value of labor; the problem of poverty, and its associated lack of access to childcare and healthcare etc., can be addressed in other ways than a MW hike. By indexing MW to inflation you impede progress toward these alternate better solutions.
Thus, indexing the MW to inflation is a bad idea.
(Despite this theoretical objection I might vote for such indexing in practice! That’s because U.S. politics are now dominated by an entrenched kleptocracy and progressives need to take what meager wins they can get.)
I suspect you and I could make a decent-sized list of government actions that could better address poverty than increasing or indexing MW. I just don’t think that indexing it at its current our even real historical levels is going to have a very large effect, positive or negative. I’m less confident of what the effects will be at, say $15/h.
But I get where you’re coming from. It seems to be a distraction. I wonder if it would be less of a distraction if indexed at some low level like where it is now. Maybe we’d focus on it less and more on IMO more important issues.
It depends on where the MW is set. If it is set at or below the market value of labor, it doesn’t do any good, or any harm - people will get paid what their labor is worth. Indexing it to inflation thus doesn’t do much either way. Setting it higher than that raises the opportunity cost of hiring, and indexing a MW in that case would simply maintain the problem and maintain higher than necessary unemployment.
Hardly any workers in the US make MW, and most of those don’t live in poor households and usually aren’t supporting themselves, or anyone else, so indexing the current MW to inflation isn’t going to have much effect.
If the problem of poverty is lack of access to affordable child care, raising the MW would be especially counter-productive. Since
(cite, pdf) a worker earning MW who gets a raise because of inflation is going to see that raise disappear almost automatically into increased child care costs.
Regards,
Shodan
Yes, we’re in agreement. In my final parenthetical paragraph I even admitted I might support indexed MW in practice.
But the theoretical point was worth making. The Board’s right-wingers are often wrong but not always. To maintain credibility we rationalists must acknowledge them when they have a point, rather than responding to their wrong exaggerations with the opposite exaggeration.
Again, you miss the key point that “market values” are not absolute constants. Are the salaries paid to baseball players or CEO’s the single “correct” values? Are the prices of pharmaceuticals in each case the single “correct” values? Is the price paid by Koch Industries for its right to pollute the single “correct” value? Air is free; if due to some quaint historical event a corporation could charge rent for air, would it still trade at its low (zero) price??
No, price determination takes place in a larger context. If this were not so, how could European fast-food restaurants pay a higher salary and still be profitable? Whenever you write “the market price”, as though this were a well-defined number independent of social and political context, be aware you are indulging in fallacy.
If fast-food wages increase, there may be some fallout, but a new market-determined equilibrium will be reached, in which employers are profitable and happy to pay the higher wage. Most economists agree that, with lower classes now having more spending power, a MW hike will increase the real GDP.
Does this help?
The key point is that MW is a constant. If it is constantly too high, it will create unemployment. If it is constantly too low - that is, lower than market price, it will have little or no effect.
No, it doesn’t help, because it is wrong.
[ul]
[li]The market price is the price set by the market. Therefore by definition it never refers to something set apart from all the factors that make up the market.[/li][li]The fallout to which you refer also includes increased unemployment if MW is set too high. That unemployment will persist if the increase is indexed to inflation.[/li][li]There is no guarantee that any given employer will become or remain profitable if the MW is increased.[/li][li]Employers will never be happy to pay higher wages mandated by law. If they wanted to increase wages, they would do so now, and would not require a law.[/li][li]My example of child care shows that an increase in MW would not necessarily lead to an increase in spending power, since labor costs make up such a large share of child care.[/li][li]Since very few US workers earn MW, and since most of those workers are not supporting themselves and do not live in poor households, an increase in MW is not going to do much (depending on how much it is increased), and much of that effect will be offset by increased unemployment, as the Congressional Budget Office found. (Cite.)[/li][/ul]
Of course, I am arguing with someone who agrees that indexing MW to inflation is a bad idea, but who will support the idea just so progressives will win.
Regards,
Shodan
:smack: You didn’t even read or understand my post. Let’s use a simpler example, Since you seem to believe that the correct market price has some absolute definition, what do you say about two instantiations similar except that in one case labor is unionized and the other it is not unionized and paid less. Which of the two wages is the absolute correct market price?
Oversimplify much? I said that indexed wages are a bad thing in theory, but when MW is already too low, and there’s little political will to improve welfare or substandard wages, right-minded voters and politicians need to take the wins they can get:
Le mieux est l’ennemi du bien.
I did read it. It was wrong.
I am not sure why you think I believe that, since I have explained that market price is not an absolute value.
Here, I’ll post it again.
Which word was giving you trouble?
Regards,
Shodan
And also from money paid by the employer to the government which matches what the employee pays in SS taxes.
And the bonds purchased by SS might or might not match the inflation rate. And how much pensioners are paid is irrelevant - only the increase from inflation adjustment is.
Whether an increase to a $15 an hour MW increases inflation does not mean that indexing to inflation will. If inflation indexing does increase inflation, we should see it from SS. The argument would be that more money to pensioners will have them bid up prices. Since a MW inflation adjustment would lag price increases, giving it would not increase the purchasing power of MW workers but only make up for the erosion of their real wages.
Now obviously any wage increases contribute to inflation in some sense, MW or not. So do price increases. Those concerned a lot about inflation should worry about this - though it didn’t work out so well when Nixon tried.
The government and laws are part of the market. If the government requires certain safety features to be built into a car the market prices of the car will reflect the cost of those features. The market price of gas includes the taxes on gas. The MW sets a floor on the market price of labor. It might be academically interesting to see where the price would be without the MW, just as it would be interesting to see what the price of energy would be without clean air laws or the price of manufactured goods without laws requiring the elimination of toxic wast. But not relevant in the real world.
Now the value of labor to the employer is not set by the government. That is of more concern with relation to profitability. If you increase that faster than inflation adjusted MW, you will be more profitable. Especially for those whose salaries will not be affected by the MW at all.
Of course it’s relevant - if MW is set high enough that the employer doesn’t make a profit off hiring, he doesn’t hire.
And as mentioned, since very few US workers make minimum wage, the vast majority of time we know pretty clearly what the labor price would be without MW laws. Median hourly wage in the US in 2014 was $13.14 per hour. (Average was $20.43).
MW increases are to liberals what tax cuts are to Republicans - “hey, free money! And no downside!”
Regards,
Shodan
If an employer cannot make a profit off of MW workers, he should not be in business. Considering that an employer’s competition will need to raise their pay and prices the same, the only reason a business would be affected is if they are not able to adapt to change.
What is it with the need to protect failed business models?
He’s talking about the marginal worker. At some point hiring doesn’t make sense, otherwise everyone would always be hiring. At a higher wage, maybe it no longer makes sense to open early or stay open late. Or to run a third shift.
I could make a profit off of hiring another PhD electrical engineer if I could pay her $70k. But the going rate is higher, so I make do with the ones we have.
The people who are saying that raising the MW to $15/hr are the same people who railed against every previous effort to raise the MW. So saying that raising the MW to $15 is raising the MW too fast is like the child who demands to be treated as an orphan after murdering his parents.
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Eliminating the MW would be dropping out the bottom on this country’s lowest paid workers, leaving them to labor in poverty.
How did that work out for France in the 18th Century?
“Those who fail to learn from history’s mistakes are doomed to repeat them.”
The only people hiring are people looking to grow their business. It does not matter what MW is. If you do not need another employee, you will not hire them. If you do need another employee, you will.
If you can make $150k off another phd engineer, would you not hire them, whether for 70k or 90k?
If you could only make another $50k off another engineer, you would not hire them, regardless of whether you got them for 70k or 90k.
If your point is that you can only make exactly 80k off an additional employee, and the going rate is 90k, well, that’s a temporary rarity. If you only have enough work to do that additional 80k amount if you had the employee, then you should work to grow your client base to fill out your staffing.
Same with MW. If I can make $20 off an employee’s labor, then I’m going to hire them whether MW is 7.25 or 10. If I cannot make at least 15, then I’m not going to hire them either way. If I somehow find myself stuck where my marginal labor would only net me between 7.25 and 10, it is on me as a business owner to get unstuck from that situation, not to blame a minimum wage that all of my competitors should be paying as to why I cannot be competitive.
You don’t seem to get that MW wages are market wages.
Yeah, if a MW increase (which ones competitors are also going to face) makes ones competitive disadvantage worse so you go out of business, tough. Some more efficient company will take over the niche and hire the laid off workers. Capitalism is hard.
Companies make more money without taxes also. But we live in a world where profits are not the only thing.
As someone who has hired a lot of PhD engineers for a lot more than $70K, I can say that if you are getting less than $70K of value from them you need to look at what they are doing and if you need a PhD engineer at all. And I’m sure you are aware that a $70K engineer costs you $100K at least in benefits etc.
As for marginal workers, one reason that job growth is slowing is that we are getting into the marginal worker population now. We need to train them somehow. But if a worker can’t get it together to offer value, with help from the employer, I’m not too upset about him being unemployed.
first, there are plenty of people hiring just to maintain their business. And second, no, it’s not whether I “need another employee”, it’s whether investing in an additional employee has not just a positive value, but one that exceeds my other investment options.
Only if there aren’t better things do with the money. At 90, there’s increased likelihood of something else winning.
That’s not my point. But yes, you appear to understand that money may be better spent elsewhere.
My point is that just because the next employee you hire, or in the case of a MW increase, the last dozen that your hired, are unprofitable, doesn’t mean that the business is unprofitable. Even at a wage of $0, the cost of employment is not zero. And at some point, for every single business out there, hiring another person isn’t worth it.
Your quote from Shodan said nothing about the business not being competitive, so this is irrelevant.
Yeah no shit; that’s marginal utility for you. We’re keeping the first four and paying them handsomely.
Just like a fast food joint may decide not to hire people to stay open 2-5 am.