What theories are there for raising wages?

When a company is deciding whether to hire an employee, they look at two things. First, what would be the cost of hiring the person? Second, how much would be the benefit from hiring them? If the benefit is higher than the cost, they’ll hire the person. If the benefit is lower than the cost, they won’t hire the person. If the benefit is higher than the cost, they will.

To give a straightforward example, imagine that Joe Blow’s labor is sufficient to produce twelve dollars for Walmart each hour. If Walmart can hire him for ten dollars an hour, it makes sense to do so. But if the minimum wage is pushed up to fifteen dollars, then employing him becomes a money-losing proposition, so Walmart won’t hire him at all.

Thus, research gives us results like this:

We review the burgeoning literature on the employment effects of minimum wages - in the United States and other countries - that was spurred by the new minimum wage research beginning in the early 1990s. Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries. Two other important conclusions emerge from our review. First, we see very few - if any - studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.

They invested their capital of course. They paid for research and development in automation, in expert systems, in process analysis and management and in streamlining systems. Their MONEY earned them the ROI they are getting in most cases, as productivity goes up and their labor costs continue to go down. It’s not about right or wrong or good or bad, it’s the reality of the situation. And the more people push for things like minimum wage hikes or some sort of artificial wages the more this is going to accelerate, the more automation will be brought to bear or the more companies will move offshore or to cheaper labor areas.

I honestly don’t know what can be done about this, but I know the liberal idea of soaking the rich and forcing them to pay for higher and higher wages that bring less and less value won’t work. Labor has to find a new path or new niche. Personally, as I’ve said before, I think what will happen is most traditional ‘jobs’ will fade away…very few people will be needed to work in this brave new world. The very notion of ‘work’ will change, and people will be paid for things like playing games or writing on message boards or other entertainment or content. In the mean time, maybe something like the BLS is the way to go. No idea.

If you are saying there is no cause-and-effect relation between Japan’s economic policies and its economic results, then what makes you think there will be any cause-and-effect relation between any action by the US and raising wages?

It’s been pointed out (IIRC by Sam Stone) in other threads, this assumes that there is a bunch of infrastructure work that needs to be done, and that asn’t going to get done anyway, and lots of people who are available and unemployed, and who have the necessary skills. And that is not a given.

The point of the cite was that Japan and Bernie Sanders and Obama assumed that infrastructure spending always automatically pays off. If you simply spend money on projects that may or may be necessary, just to stimulate the economy, then when the stimulative spending ends, so does the project. And if it turns out that the project didn’t really pay for itself, then you have simply robbed Peter the taxpayer to pay Paul the unemployed road worker.

Building bridges to nowhere just to raise wages gets you nowhere.


I agree at least partially – infrastructure projects need a reason to be most effective. From my reading, though, we have lots of bridges and highways that need repairs, lots of electrical and communications infrastructure that need modernizing, and the like. Pair that with related job training for low-skilled unemployed workers, and I believe it would be beneficial to the economy and help raise wages.

The question is whether US policymakers should give a shit about global poverty beyond the extent to which it impact our own interests (security, markets for our goods, etc). If there is a policy that will eliminate 90% of the poverty in China and India AND produce 25 billion dollars a year in profits to the owners of capital but would replace a million American jobs @$50,000/year with minimum wage jobs earning $15,000/year working the frialator at McDonalds and collecting shopping carts in the parking lot of Wal Mart, should an AMERICAN policymaker choose?

Free trade agreements have driven down the wages paid for low-skilled labor. No one wants to return to a high-tariff era, but inequities can be partly mitigated by insisting that goods sold in the U.S. not be produced unsafely or by child labor.

Labor unions were a major source of rising wages and improved working conditions for more than a century in America. It was a partnership between capital and labor that made America the powerhouse of the 20th century. Yet labor unions have come under increasing attack by Republican politicians: the list of “right-to-work” states is very close to both the list of red-voting states and the list of states with lowest wages. We need to elect poliicians who will repeal these anti-union laws.

Yes, it is amusing how the right-wing has no trouble defending the compensation negotiated by hedge fund managers, the B_of_D in-crowds, and professional cliques operated as cartels, but somehow thinks a wage negotiated between labor union and management would be a distortion.

If all you wanted to do is raise wages you could raise the minimum wage to 50$ per hour. Of course this would cause massive unemployment. High wages are not a good thing if accompanied by massive job loss, that is what causes depressions.
The only real way to raise wage is to either limit supply or increase demand. Limiting supply means either severely limiting immigration, increasing welfare, lowering the retirement age. All these have bad side effects in that they lower total output of the economy.
Increasing demand could be done temporarily through government spending but with unemployment as low as it currently is, it would likely be wasteful in the long term.
In the long run, the only way to permanently raise wages is to increase the productivity of the economy as a whole. Make it easier to start businesses and to expand businesses. More businesses bidding for workers means higher wages. This could be done by lowering paperwork and licensing. Also by lowering corporate tax rates. Lowering environmental standards.

Companies holding cash does not result in stockholders reaping benefits. In fact the opposite occurs. Cash does not provide a substantial return. Over the past several years, cash has returned about 50 bps per year. So large cash reserves on corporate balance sheets actually dilute the returns to stockholders.

Companies see their stock prices negatively impacted when they hold large cash reserves. Shareholders would rather see the companies invest in other things like buying other companies, building plants etc.

So why do companies with stockpiles of cash not do these things? This is primarily driven by uncertainty in the market, uncertainty about regulatory matters, uncertainty about taxes, uncertainty about credit markets. They are afraid of making potentially bad investments.

This combined with the Federal reserve policies over the past 8 years, which have artificially kept interest rates low, have driven the equity markets up in a bubble fashion. It is easier for some investors to pay more for stocks of some companies because they can borrow money cheaply to do so, and financially engineer a larger return. This has resulted in an overvalued market, that further causes companies with large stockpiles of cash to be wary.

If the Fed and the government would quit trying to tinker in the market and establish fundamental tax and regulatory policies that provided confidence for businesses, then you would potentially see the market bubble come back to a norm. Companies would feel more comfortable about investing, which would result in more jobs, greater demand for labor, and as a result wages would increase.

Households might increase savings or consumption or both.

We might increase taxes a bit and pay down our debt.

There would be dislocation but presumably there would be some stimulative effects associated with people keeping an extra trillion dollars in their pockets every year.

Wait, you think Japan’s continued (and probably inevitable) decline is the result of an infrastructure program or some other form of Keynesian economics?


They are hiring the people that set their pay. If you could hire and fire your boss, they would give you performance bonuses you could retire on every year.

Its pretty well established that reasonable minimum wages don’t do much to increase unemployment and do some good at reducing poverty. When you raise minimum wages to $15 like Bernie wants to do, you can have significant effects on unemployment.

Its not because they are smart or stupid. Economists have recognized the downward pressure on wages for a long time.

Its not inevitable but there is pressure towards subsistence wages in the absence of collective bargaining or a booming economy.

This is why pensions and social security is so important because most people don’t have the discipline to save for their own retirement.

I don’t think there is much productivity loss from having a minimum wage.

Social safety nets like you describe create all sorts of moral hazards and disincentives.

A stipend for citizenship is not a horrible idea. It would mean increasing taxes on people who can afford it and most of the middle class would see their taxes rise by as much as the stipend but it would eliminate much of the disincentives associated with traditional welfare programs.

Can you run Fortune 500 company?

In the past, as the economy improved, and companies expanded and needed to hire more people, there were lots and lots of domestic job opportunities. This is for both low-skill workers and high-skilled. Right now, when a company is doing great and looking to grow, the majority of the jobs they’re creating are overseas. Few new jobs in the U.S. means very little competition for labor, which means wages don’t increase. We need job options in order to negotiate higher pay.

It’s a lousy time to be an American worker. We are in an awkward transition right now from a domestic economy to a global economy and this wage stagnation will continue until the salaries overseas have caught up to the U.S.

Right to work laws mean lower wages but lower unemployment.

The difference between negotiations between hedge fund managers and the suckers who pay them and unions is free choice. If an investor does not like how much a hedge fund manager is paid they are free to take their money back and invest somewhere else. If a company does not like how much union workers are paid they are not free to fire the workers and get new ones. That is why there is a distortion.

The other aspect that I’ve noticed as a long-time corporate worker is that we are doing more with fewer people. The media has proclaimed how efficient companies have become over the last couple decades. I think that’s only partially true. Everybody I work with is constantly juggling 5 - 8 different projects simultaneously. Despite cheers about how open offices allow us to collaborate, it’s really hard to collaborate lately because we can barely spare 5 minutes for each other. Need to run to my next meeting. I can’t answer your question, you’ve just broken my concentration for this high priority task I need to get done by end of day. Roles like department secretary are largely gone, so me and my coworkers have to do all of our own administrative work. Also there are a lot of companies where the lead programmers also have to do business analysis and/or project management because the company won’t hire separate staff for those tasks. Or a lead programmer who is boosted to department head without the title or commensurate pay, as what happened to my husband. When I was last job hunting, I saw a LOT of job ads written for those “combo” jobs.

I think this is the missing link behind why wage increases haven’t kept pace with company profits. We’re scrambling to keep up but not paid any more. That makes it kind of offensive when people ask what additional work we’re willing to do to justify any wage increases.

So doesn’t this mean that if the USG devotes resources to a massive public works program that a lot more people will be employed domestically and the market for workers in industry will become tighter, thereby putting pressure on wages to rise?

They won’t get it unless they demand it and are in a position to demand it. Let them join One Big Union (not necessarily an anarcho-syndicalist union, but the concept still applies).

Meg Whitman didn’t invest a penny of her capital in HP. Neither did Carly. I suspect relatively few companies where the owner invests him or herself makes it very big. That is what VCs are for. So, your point could support the big bucks made by VCs, but not the big bucks made by the CEOs of mature companies.