Here (from the same report): Defining and Characterizing the Low-Wage Labor Market
Amazing what you find when you actually look at the cite you’re supposedly discussing.
Or, the model may be full of beans, but accurately presented. It wouldn’t be the first ridiculous result produced by a financial model.
E.g., in today’s NY Times, Paul Krugman cites a “forthcoming CBO study” that says the administrative cost on Social Security personal investment accounts could be “as much as 30%.” Private firms manage such acounts for around 1%, so the high end CBO estimate is ridiculous, but I don’t doubt that Krugman has accurately quoted the report. (Actually, I do doubt it a bit, since the report is “forthcoming”, rather than published.)
This link goes back to the SD, rather than the report cited.
Sorry about that. It appears that the “low wage labor market” the authors are studying includes more than m-w workers, but not all workers. In other words, I think we were all wrong in our interpretations (but the “just m-w” side was less wrong… 
).
Oh, and the study was commissioned by the HHS from the Urban Institute.
Thanks for the cite.
However, it appears that this study is not the source of the disputed 10% employment drop. (At least I didn’t come across it in skimming the article.)
In fact, this study says,
The implication of relative insensitivity seems to be that they could raise the mw without a major redution in unemployment among low wage employees.
You’re quite right; it is not. However, this paper (Defining the LWLM) is subjectively linked to the other paper, as they are both supporting one study which aims to define the effects of social policy on low wage earners. The authors note that: “To help policy makers answer these questions, nine papers by experts in labor market analysis were commissioned by the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, to review current literature on the low-wage market and highlight policy implications that flow from the review. (The Data Appendix provides a statistical portrait of the labor market as a whole and the characteristics of low-wage workers.)”
Unfortunately, the Data Appendix, which would probably provide the specific tabular information we’re searching for, does not appear to be available online.
I take back what I said about the writers being at fault. The title of the article Kimstu put up was “The Low-Wage Labor Market: Does the Minimum Wage Help or Hurt Low-Wage Workers?”
So even if they didn’t repeat it later it should be clear that they were referring to low-wage workers when they talked about employment drops.
Only the text of Kimstu’s quote taken out of context was confusing and even here a little common sense should have sufficed to guess the correct meaning.
Anyway I think it’s a little pointless going on and on about what is a minor issue…
I agree. (However, speaking of “pointless,” maybe that word describes the allure of my posting rather than working…)
Xenophon:
<<<…you seem to remain frighteningly oblivious to the point which Kimstu has been trying to make.>>>
Um, no. I think what’s “frightening” is the obliviousness of some to what is very clearly the plain language of the text.
<<<What does the term “unit elasticity” imply to you?>>>
Well, the term “unit elasticity” needn’t “imply” anything, because the term has a very specific definition in economics.
i.e.:
http://www.mintercreek.com/micro/overview.html
Simply put, in a universe of “unit elasticity,” profits remain constant wherever the price is set (assuming the price is set below the cost of production) because demand for a given commodity increases as prices go down, and decreases as prices go up.
Therefore, unit elasticity supports the notion that higher minimum wages will increase unemployment. The extent to which it does, of course, depends on the spillover effects of minimum wage increases into other income levels.
So, once again, the report originally cited by Kimtsu to support the idea that it is not clear that minimum wage increases actually increase unemployment, turns out to suggest that Kimtsu is mistaken-- the consensus of research and theory (with the notable exception of the Card study <itself premised on some ridiculous assumptions) indicates that yes, there IS indeed a cost to be borne when increasing the minimum wage.
As a final note–and this subject is getting a little old (but it did make me go back and look up “unit elasticity,” for which I thank all of you), why is it we never seem to subtract the effects of inflation from any percieved benefits to a minimum wage increase? It seems like a pretty obvious thing any rookie financial planner would know to do.
The report states that minimum wage increases would not reduce the poverty rates. If so, then throw in inflationary effects and it would have to increase them.
(Then again, we’re talking about the rentier class–net debtors, so maybe inflation’s a good thing for them IF they stop taking out consumer loans. Fat chance though.)
For what it’s worth, Paul Krugman’s a good writer, but a drooling idiot when it comes to Social Security. He’s still laboring under the illusion that there’s a “trust fund” one can “shore up” by throwing money at it.
“He’s still laboring under the illusion that there’s a “trust fund” one can
“shore up” by throwing money at it.”
Ahem. Perhaps you should try to understand the issues yourself before calling experts “drooling idiots”.
PK and every economist knows that there isn’t a trust fund. The point about running SS surpluses is that it allows the government to either have lower deficits or reduce the debt which in turn reduces the crowding out of private investment , increases capital accumulation which means that the workers who will tomorrow pay SS taxes will be more productive. So in a very real sense running SS surpluses today makes it easier to pay SS benefits tomorrow just as if there was a “lockbox”.
BTW if the SS surpluses are so useless doesn’t that mean that the government should cut payroll taxes whenever there is a SS surplus. If what the Bush people said was true then then that would be an argument for immediately cutting payroll taxes till there is no SS surplus. The fact that they don’t advocate this is an indication that they don’t really believe their own bogus arguments.
Mommy and Daddy never taught you to admit when you’re wrong? OK. G’bye.
Now THERE’S a mature and thoughtful response. <rolling eyes>
That would be 1% per annum which works out to around a 30% reduction of growth in assets over the life of the plan. So no, his account isn’t ridiculous. Compound interest is a bitch.
I like CP’s post because it doesn’t claim that there’s a lockbox and it explains that the SS surplus is fully spent on federal obligations, so there’s no meaning to the idea of "dipping into SS; it’s already fully dipped into. Still, the post could be clarified in several respects:
-
The point of running SS surpluses is that SS has its own separate accounting. SS actuaries traditionally considered the plan to be in balance if their projection showed that it would not become insolvent for the next 75 years. (I think that SS is now out of balance according to this criterion.)
-
If one looks at SS alone, there is a real trust fund, which is invested in Federal Government bonds. If one looks at the Federal Budget combined with SS, there is no Trust Fund, since that money was used to pay for government services. Both viewpoints are valid.
-
It is true that in the long run a strong economy is the key to funding SS, since it’s a pay-as-you-go system. However, I disagree with the argument which equates the SS surplus with a “lockbox.” Nobody knows whether the economy 30 or 60 years from now will be helped or harmed by government deficits and taxation levels today. For all we know, lower taxes and higher SS deficits might result in a stronger future economy.
-
You say, “If what the Bush people said was true…an indication that they don’t really believe their own bogus arguments.” Pretty harsh words. I’d like to defend Bush, but I don’t know what he’s being accused of. CP, what statements by the Bush people do you claim are bogus and untrue? Can you provide a cite?
-
The unfunded liability in SS is much larger than the funded portion which is in the Trust Fund. Any serious discussion needs to consider the unfunded liability.
(BTW my actuarial training is in property/casualty insurance, so any of you life and pension actuaries please feel free to correct me.)
Incidentally, IMHO PK shouldn’t be taken seriously, but he’s not a “drooling idiot.” I think he’s an ideologue who writes unreliable, biased articles to support his POV and often puts little effort into them. At the moment he’s actively twisting facts to attack Bush and to oppose voluntary investment accounts.
I will just comment on the minimum wage debate.
Having worked in many jobs that involved a small workforce, the effect of the increase went to other areas of the business besides affecting unemployment.
Usually the business owner would have to lay someone off to imnmediately cover the extra costs. If they needed all the employees to meet production however, they would raise the prices of their product, to cover the extra cost to employ workers. Sometimes the owners would do both.
I believe that the raise in prices is the real damaging part of a minimum wage increase since it affects many people, not just the worker that was laid off.
CyberPundit said:
Or, it allows the government to spend more money and create more entitlements, thus making it HARDER to pay SS benefits tomorrow.
In other words, if the government today just barely pays for all the things it does, even while spending the surplus from Social Security, then when the day comes that the SS surplus becomes a deficit, the government will have the double-whammy of losing the funding of the surplus AND having to make up the SS shortfall.
If the Social Security system is actuarily sound, then borrowing money from the surplus today is no different than borrowing it in other ways, such as bond issuances. Either way, it’s a debt that must be repaid. It’s hard to see how incurring debt to pay for non-SS programs today somehow makes it easier to pay SS benefits tomorrow.
December,
“Nobody knows whether the economy 30 or 60 years from now will be helped or
harmed by government deficits and taxation levels today. For all we know, lower taxes and higher
SS deficits might result in a stronger future economy.”
Well from the point of view of capital accumulation a dollar in lower taxes stimulates investment mainly to the extent that that dollar is saved, a very small percentage currently in the US. OTOH every dollar used to to reduce the deficit or reduce the debt will reduce crowding out significantly.
To name only one of the inconsistencies in the Bush line; let me mention one by in PK’s latest column ie when SS becomes unable to meet its obligations in a few decades its deficits will as a percentage of GDP be roughly the same as the Bush tax cuts. In other words it is inconsistent to say that SS is going to be in deep crisis and at the same time say that the Bush tax cut was affordable and moderate. Without the Bush tax cut there would barely be any SS crisis at all. There is no particular reason why SS liabilites can’t be funded from general taxes.
Could you give examples where you think PK has sacrificed good economics for ideology?
“Or, it allows the government to spend more money and create more entitlements,”
Hmm. Entitlements don’t crowd out investment and in fact are just a tranfer so they don’t necessarily have an effect on the real economy in terms of total output.
And anyway if the SS surplus is used only to pay down the debt and later to invest in private securities it’s hard to argue that this is feeding higher spending.
To both Sam and December,
If you believe that the running an SS surplus doesn’t help capital accumulation and is useless doesn’t that mean that logicaly there is no point in ever having an SS surplus. Doesn’t it mean that payroll taxes should be cut to eliminate the surplus. And since the SS surplus accounts for a lot of the “surplus” shouldn’t payroll tax cuts have come before income tax cuts especially since the two have a very different distribution.
OK I may have misunderstood Sam’s point so here is another response.
"Or, it allows the government to spend more money and create more entitlements, thus making it
HARDER to pay SS benefits tomorrow. "
This assumes that in the absence of funds from SS taxes the government would have reduced spending or raised taxes. From what we know of the politics of the 80’s I think this is rather unlikely and more likely would be that the deficit would have stayed the same but it would have come from the private sector and thus crowded out private investment.
December,
Your point 1 seems to be a response to my question about why an SS surplus should be run but I am not sure it answers the question in any way. The basic argument of the Bush people is that assets accumulated by SS are not real assets because they are basically an IOU from the tax payers to themselves. But if you believe that what exactly is the point of running an SS surplus at all? The accounting is quite distinct from the economics.