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11/26/2006

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ben

NE Hatfield

Those are some impressive names, but the questions remain: how is slavery possible under capitalism when everyone is accorded rights which are enforced? How it is cold hearted to reject measures which hurt the poor?

It is hard to respect or understand a view if it is backed only by your pleasure to hold it, rather than good reason.

No nerves touched, just pointing out where I think you might be off base.

N.E.Hatfield

ben,

question 1: The U.S. prior to 1865 or the rest of the Americas. Just one of many examples. As for today, it's rather well hidden in that "dark underbelly, especially in Asia and the rest of the world.

question 2: It's called "hearts and minds". Humanity has both, not just one and the mind must be guided by the heart. Otherwise ... reason alone can carry one to some strange places, sometimes even Hell.

Haris

NE
C'mon, you can do better than this. Slavery isn't a feature of capitalism, and is certainly not endorsed by it. The fact that it exists in a mostly capitalistic world is unfortunate, just like the fact that murder, rape, and robberies still happen. It's a matter of law enforcement and property rights.
And stop thinking you touched people's nerves if they disagree with you.

Jack
You're not actually suggesting that the fact that "advanced" nations subsidize agriculture means anything at all except how strong the agricultural lobby is, are you? Because all it is is a redistribution from the many [us] to the few [poor small farmers like the DuPont corporation]. If you support subsidies like that, you should be backing the EITC expansion. The EITC is a pretty good analogue to the subsidies, and while it is bad for workers in other countries [like farm subsidies are bad for foreign farms], we don't really care about them now, do we...

Joel Pinheiro

Jack, not even the classical economists, not even Marx, would be capable of making this assertion of yours:

"Virtually all economists recognize the flaw in capitalism which bids down generic commodities and low skilled labor to well under the costs of production"
This is your invention!

What determines the price of something is its marginal utility.
If you say a given good has a price lower than what it costs to produce him, then it means that the resources used in producing that good are being badly employed, and should be used to produce something else (from the point of view of society).

What the classical economists, and Marx with them, wrongly assumed, and you do as well, is that the wage of workers would always be kept on the bare minimum for their own sustenance and reproduction.

This thesis can be refuted both theoretically and from a simple empirical observation.

If firms are making a profit hiring labourers cheaply, it will be good business for other firms to do the same. And as firms compete for labour, its price goes up. You have so far failed to deal with this economic truth.

Furthermore, suposing that what you say is true, that firms will always pay the minimum to their employees (according to you, even below the cost of keeping them alive!), then there would be no firm offering wages even one cent above the minimum wage.
But that is false!
Even in the third world city where I live the great majority of workers earn salaries superior to the legal minimum wage. The same is true in the USA.

So you see that both logic and experience, by two different ways, can refute your assertion that firms will always keep wages at a bare minimum.

Like every other resource, firms compete for labour, and have to, if they want to make a profit, offer wages higher than their competitors for that same resource.
Wages will thus rise up to a certain point.

To raise it further, it is necessary that the productivity of workers increase, either through physical or human capital accumulation.

Both farm price subsidies and minimum wages are terrible things which greatly impoverish any nation which institutes them.
Rich nations can easily bear this, as they already have acceptable life standards.
Poor nations, on the other hand, are kept in perpetual poverty by these pernicious interventionist doctrines, whose failings provide the justification for yet more interventionism, in a vicious cycle whose last end is socialism and with it the implosion of society itself.

As for the comments on monetary policy being the cause of unemployment: accusing the FED or central banks in general (and I'm no supporter of them either, or of fiduciary money for that matter) of causing unemployment by fighting inflation is absurd.
The FED's activity consists of increasing the quantity of money, that is, of coloured paper. In order to "fight inflation" (actually the FED causes inflation in the first place) it restricts somewhat the growth of the quantity of money.
Does increasing the number of coloured paper (or numbers in mainframes) make society wealthier and prosperous? Not at all.
Thus, no jobs are lost when the FED decides not to be as inflationary as some people would like it to be.

If you answer this, I ask you to please make arguments and try to prove your case on its own merits rather than constantly rely on the supposed opinion of the elusive "ALL ECONOMISTS".

Anonymous

Haris & Joel Thanks for the response.... I'll try to address your questions:


You're not actually suggesting that the fact that "advanced" nations subsidize agriculture means anything at all except how strong the agricultural lobby is, are you? Because all it is is a redistribution from the many [us] to the few [poor small farmers like the DuPont corporation].

Ha! I thought the same in an early econ course...'long about 1968 or so. But! the system does NOT work in the case of farm commodities and generic labor. Here's why: If in the "supply and demand" model of widget producers the third quarter is slow the firm can reduce production, improve sales department or direct their resources into a more profitable product or model.

Very different from the farmer who approaches his broker with a ripe crop in the fields, harvest labor and equipment scheduled for the coming week, and rain clouds on the horizon, and very thankfully in our country in most years a bumper crop in which the supply exceeds demand. The broker is standing there with dollars or letters of credit and will buy only if there is a virtually assured margin for himself. Now by harvest time there are few secrets about the upcoming corn harvest and contracts and forward markets have already set the price.

Now if you recall your supply and demand graphs, the ever-elusive "equalibrium" price bears no relationship to production costs and instead Price drops off that steep demand slope that looks like an extreme skiing run. That's why wise Saudi Princes schooled schooled at Harvard or Oxford "forego" the opportunity to sell as many bbls as the world demands. But you've noticed being able to buy 10 ears of corn for a buck? And pictures of old navy vessels filled with dried corn? And attempts to turn it into ethanol?

..... "but teach?" asks the wise kid in the back row, "doesn't the farmer make it up in scarce years? or why doesn't he switch products like the widget guy?" Well, he tries, but! if corn is scarce and priced too high the wily housewife out foxes him again and puts green beans or carrots on her plates. As for switching he tries that too, only to run into his neighbor whose having the same problem with a different crop.

If you support subsidies like that,

....... I begrudgingly live with the subsidies after coming to understand that subsidy, price support, land bank and all, our farmers produce the cheapest food in the world and that improvements there are likely to be small and rare. I WISH I could have drawn a line with a giant marking pen before Archer Daniels and the K-street boys saddled us with the ethanol scam.

you should be backing the EITC expansion. The EITC is a pretty good analogue to the subsidies, and while it is bad for workers in other countries [like farm subsidies are bad for foreign farms], we don't really care about them now, do we...

........ it's much worse. As regardless of who's farming farm land is likely to be farmed in any case. But having the government assume increasingly higher percentages of the cost of low income worker's wages creates massive distortions in the labor market and the subsidy to poor, or greedy (Walmart) business models slows them from making the needed increases in productivity or going out of business entirely.

Funny thing here.... the style is to intro oneself as a "conservative" or believer in capitalism but then by one means or another to want to duck and "third party" some or most of the costs of higher low paid labor. "Min wage as a mandate" or not the truth here is that if a businessman employs a truck he must bear the full costs of buying and operating it. If he employs a human being he (or SOMEONE) must cover those costs of operation.... which were estimated in OK as being about $17/hour. So.... I ask all capitalists here, if the employer does not pay at least those basic costs, where should we send the bill for the remainder? (Please.... no tap dancing about teens of "wealthy" homes etc. Instead go into some fast food places and Walmart and see who makes up this underpaid workforce. And in the case of Walmart that has legitimately made a great contribution to distribution efficiency and productivity with the fattest bottom line in world history to show for it ask yourself(as they aren't saying) WHY they WILL not pay a living wage and instead fiddle with "28 hour" weeks in order to take maximum advantage of taxpayer subsidies meant for those in crisis or working for marginal companies unable to pay a decent wage? While COSTCO pays very nearly twice as much per hour?

Jack

Haris

Not gonna act like I followed your take on ag subsidies, or that it's somehow realistic or relevant. Farmers have made a living for centuries without subsidies. If you aren't getting the prices you want, maybe you stop growing billions of tons, sell some of the land to someone who can use it, and start up your own business as an ag broker, since they seem to be making a killing in your example. No one's stuck doing what they're doing. I know there are some transition difficulties but I don't think our job is to make sure everyone has an easy life. Particularly those who are unproductive.

If the federal government wants to make sure that people have a living wage, it can damn well assume that responsibility and pay for it rather than pawn it off on businesses. Maybe if we redirected the oil subsidies and weapons systems and [yes] ag subsidies to the EITC, then the federal government could afford to help the poor. I don't know why it's okay, in your view, to subsidize farmers but not workers.

Jack

Joel: Thanks.... and do you mind if I deal with your claims as questions:

Jack, not even the classical economists, not even Marx, would be capable of making this assertion of yours:

"Virtually all economists recognize the flaw in capitalism which bids down generic commodities and low skilled labor to well under the costs of production"
This is your invention!

...... Joel it would have been better to ask IF this was my "invention" which sadly it's not and has been a part of the teachings of "classical" economists for a very long time. You can google up summaries perhaps by using key words: many sellers-few buyers.

...... does your mention of "classical" mean you might be one of the new adherents of "faith-based" or "voodoo" econ? or rebelling against Keynes in favor of whichever coven of witches brought us eighteen years of experimentation with "supply-side" theories along with eight of the $9 Trillion of Federal debt, a trade deficit soaring past $700 billion this year alone, our economy running at 70% of capacity and zipnada on the demand side?


What determines the price of something is its marginal utility.
If you say a given good has a price lower than what it costs to produce him, then it means that the resources used in producing that good are being badly employed, and should be used to produce something else (from the point of view of society).

....... well true in the simple case. If a maker of lattes doesn't come home with enough to eat and house himself, odds are, if other options ARE open he'll seek them out. But! in the case of a man out in the rain with a wife and two kids in the car who's been looking for six weeks and is offered half a living wage over nothing he's very likely not to hold out for more.

What the classical economists, and Marx with them, wrongly assumed, and you do as well, is that the wage of workers would always be kept on the bare minimum for their own sustenance and reproduction.

........ to understand, me, Marx, or Keynes thoughts on the min wage issues, we'd first excuse those who have a franchise in the form of scarce talents, high skills, work in careers where the entry threshold is high such as law, medicine and the like and look at those who for this purpose would be called generic labor.... ie applying for jobs that can be taught in a matter of hours or days. It is sad that there IS always a surplus of such labor, and an issue we SHOULD address in an era when the New Economy needs 75% college or hi-tech yet we graduate only 25% from college and a few more from tech-schools.

But.... it is the case.... and as mentioned exacerbated by the OTHER great flaw in capitalism: that it CAN not run at full employment and must have 5% unemployed. Obviously that 5% is mostly those who's skills are least in demand, and they exist very close by the lowest 5% on the wage scale who are employed. Can you begin to see this 10% does not command much "market power??"

This thesis can be refuted both theoretically and from a simple empirical observation.

If firms are making a profit hiring labourers cheaply, it will be good business for other firms to do the same. And as firms compete for labour, its price goes up. You have so far failed to deal with this economic truth.

...... yes! We do see a "lot of firms profiting by paying workers low wages!" They fall into quite a few categories including such giants as Walmart which for some "curious" reason gets away with paying about half what COSTCO pays.

...... but! the typical "deal" in our time is that of our economy being "FUBAR" (ask a soldier) with the stated unemployment rate not being unusual but the rate of "underemployment" being enormous. Using your own example in a time of truly strong demand for labor we'd not see so many latte stands or acres of marginally productive retail shops. Here's why: Say the operator of a string of dress shops is deciding to open or close a store. When labor is very cheap he can afford to have a couple of clerks stand around all day for just enough business to pay their low salaries plus provide a small profit to the operator. Open 50 of these and GREAT the owner lives well, the employees get token payment...... and add their names to the other 30 million on EITC.

Now....... run the country so there IS growth AND demand for employees and those clerks WILL move on to better jobs. The operator of the string of stores had better figure a way to improve sales and PAY his clerks, or close the lower volume stores. But..... AS demand in this country is LOW ... those who are clerks command little market power. (And yes I know they should all have $25,000 and four or five years to finish college and improve their skills........ but that's well beyond our discussion of why advanced nations do mandate a min wage...... and must.)

Furthermore, suposing that what you say is true, that firms will always pay the minimum to their employees (according to you, even below the cost of keeping them alive!), then there would be no firm offering wages even one cent above the minimum wage.

....... See above. But! let's turn it around.. we KNOW there are millions who ARE at even the miserably eroded min wage of today. And it seems a very fair extrapolation that were even this floor not in place wages for many would be yet worse.

But that is false!
Even in the third world city where I live the great majority of workers earn salaries superior to the legal minimum wage. The same is true in the USA.

.... Ha! ONE would hope to hll and well beyond that MOST salaries ARE well above a min wage that is half or one third the cost of the most basic existence!

So you see that both logic and experience, by two different ways, can refute your assertion that firms will always keep wages at a bare minimum.

........ though econ and the principles of capitalism are fairly logical you can not learn the by observation or experience. And fortunately MOST of what one needs is in the introductory course. If you took that much you could continue.... perhaps reading the economist and using experience and logic, but not before.

Like every other resource, firms compete for labour, and have to, if they want to make a profit, offer wages higher than their competitors for that same resource.
Wages will thus rise up to a certain point.

........ ah so. However keep in mind that generic labor is ALWAYS in surplus. In fact..... the the unemployed lavor "overhang" of more than ONE billion people world wide may well destroy the standard of living within the US if we remain on our present course of "the wage race to the bottom" Please note that lately ONLY those earning more than $90,000 have had wage increases (worthy of the term) in a dozen years here.

To raise it further, it is necessary that the productivity of workers increase, either through physical or human capital accumulation.

...... indeed. And in a former time when productivity went up MOST American workers shared in the gains. No longer true. Walmart has made a quantum leap in the tech of distribution..... but! keeps it all for themselves.

Both farm price subsidies and minimum wages are terrible things which greatly impoverish any nation which institutes them.

....... it is far more complex and not understandable to the bystander.

Rich nations can easily bear this, as they already have acceptable life standards.
Poor nations, on the other hand, are kept in perpetual poverty by these pernicious interventionist doctrines, whose failings provide the justification for yet more interventionism, in a vicious cycle whose last end is socialism and with it the implosion of society itself.

....... this is quite a lump of stuff. However sticking to the employer paying a living wage to its lowest paid workers, one result is that he works harder to find efficient means of using these scarce resources. Union wages do the same.... the last thing you want is a brace of union guys using shovels if you can hire one union guy with a backhoe.

As for the comments on monetary policy being the cause of unemployment: accusing the FED or central banks in general (and I'm no supporter of them either, or of fiduciary money for that matter) of causing unemployment by fighting inflation is absurd.
The FED's activity consists of increasing the quantity of money, that is, of coloured paper. In order to "fight inflation" (actually the FED causes inflation in the first place) it restricts somewhat the growth of the quantity of money.

...... indeed. The basic theory (and perhaps it's broken) is that of increasing the cost of corporate borrowing, thus stalling expansion plans....... and.... of course, hiring to fill those expansions.


Does increasing the number of coloured paper (or numbers in mainframes) make society wealthier and prosperous? Not at all.
Thus, no jobs are lost when the FED decides not to be as inflationary as some people would like it to be.

..... Were the Feds actions worthless or neutral our stock boys would sleep in instead of pile out to hear what "the guy" says.

If you answer this, I ask you to please make arguments and try to prove your case on its own merits rather than constantly rely on the supposed opinion of the elusive "ALL ECONOMISTS".

....... How about "ALL except those who've found fertile fields in right wing "think" tanks and are paid quite well to sell the canards politicians of our former plantation and slave states?"

Jack

Corey

You know what I think is hilarious? It doesn't matter one bit what Posner or any of you econo-bloggers think about the minimum wage. Why? Because of the recent ballot initiative results in every state where the question has been posed have raised the minimum wage.

Eventually, the 20-some non-initiative/referenda states will have to legislatively raise their wages as their people grow discontented and ponder moving west.

Poor people want to make more money, and there are only enough of you to stop them in republican-government-land. In direct-democracy-land, the minimum wage is already up.

I guess if the economists want something to do, they can compare productivity between states with 40% higher minimum wages.

Corey

And see, with the increase, I can buy 40% more wine. Wine makes your econo-blogging seem funny.

I learned in some class once that all this "minimum wage hurts poor people" stuff was wrong. I guess that's what I get for not going to UChicago.

If you pay your cafeteria workers 40% more, does that make them 40% less likely to put disgusting things in your filet while cursing under their breath in Tagalog?

Corey

"2. Absent minimum wage, wages cannot fall to zero. Everyone has alternatives to selling their labour by the hour on the open market."

What is it now, $50 for 30 minutes, no kissing?

oh wait... you meant less demeaning alternatives than working for $5.15 an hour

I'll head on down to McD's and tell everyone you said they had alternatives. People love to hear stuff like that from white guys with six figure jobs.

Corey

Reaganomics is taking a long time to die out

Jack

Anonymous... confusing and contradictory:

You clearly oppose the subsidies of farm programs and offer a number of specious suggestions for getting rid of them but favor subsidies for low paid workers?

You say: "If you aren't getting the prices you want, maybe you stop growing billions of tons, sell some of the land to someone who can use it, and start up your own business as an ag broker, since they seem to be making a killing in your example. No one's stuck doing what they're doing."

....... and naturally ALL of these suggestions are taken, by some. But the huge number of sq miles of rich farmland we are VERY lucky to have, have little use other than as farmland and will, very likely be farmed..... by someone. But year in and out, most often huge surpluses are produced. Now we COULD do something different such as, basically giving the surplus to starving people in other lands (they've not the currency to buy it at any useful price) but! that would be another form of price support and the American consumer is, once again paying the farmer what it costs to produce the entire crop. Tough problem. Not easy to understand. Stuck with it! though, and with the ethanol camel getting its greedy nose under the tent it will get worse.

If the federal government wants to make sure that people have a living wage, it can damn well assume that responsibility and pay for it rather than pawn it off on businesses.

........ Oh? And when did it become a part of capitalism to have the government pay the operational costs of a business?? Would you "like" to have them also pay the costs of your plant? equipment? other? Sorry but it's the central tenet of capitalism to allocate the true costs of using scarce resources to the business that is benefiting from their use.


Maybe if we redirected the oil subsidies and weapons systems and [yes] ag subsidies to the EITC, then the federal government could afford to help the poor. I don't know why it's okay, in your view, to subsidize farmers but not workers.

........ It is confusing as both problems derive from a similar flaw in the capitalist engine. But in the case of farm price supports the government does "something" with a small segment of the crop (or by other means) that rescues the price of the WHOLE crop from falling below the cost of production and bankrupting most of the farmers.

....... the closest thing to doing the same thing in the case of labor is that of mandating a min wage, ie, ensuring that the price paid does not fall below "the costs of production" or what it costs one person to live at a very basic level.

...... Now it's VERY clear than nowhere in the country can anyone pay their own way at $5.15 or at even double that amount. It's also VERY clear that "THE market" is pulling the wage up toward the living wage of close to $17/hr so what's to be done? Mandate that the employer come CLOSE to paying a min wage? Or let the min wage continue to drop while taxpayers pick up the tab for increasing levels and numbers of people on EITC? plus a host of other, costly to administer transfer programs directed at people who ARE working full time??? So, when a yacht own pays the token $5 min wage to have his boat washed middle class taxpayer pitch in another $10 to cover the rest?

Jack

ben

N.E.

Has it not occurred to you that the slaves of pre-1865 were excluded from the capitalist system, and that their status was the product of inconsistent application of property rights? Were those rights granted to all - which is surely a pre-requisite for the pure unfettered capitalism about which you complain - then slavery is not possible by definition. Capitalism is defined by the economic freedom those slaves were denied. Slavery violates the rights which are intrinsic to capitalism; it therefore exists in spite of capitalism, not because of it. Your argument fails.

Your second point. If you have to abandon reason to make your point, what have you got?

Haris

Jack
It is not a feature of the capitalist system for the government to pay business expenses. I never said that. It's also not a feature of the capitalist system to have the government mandate a living or a minimum wage. If the government wants to mandate such things, it should bear the costs for it. If the taxpayer doesn't want to pay for it, they can elect a government that feels differently. I'm pretty sure that's how democracy is designed to work.

Second, the taxpayer will bear the costs of everything anyway, whether it's the EITC or the minimum wage. At least in the EITC the costs are accounted for as an item in the federal budget, and they're paid for by the top 60% of earners [the bottom 40% pay no federal income tax to begin with]. In the case of the minimum wage, the taxpayer pays for it in his role as a consumer: since the price of inputs has rises, the cost of the final product will rise as well.

BTW, Corey: you've correctly identified that most people have no other choice but a minimum wage job. Maybe that's the real problem we should be addressing.

Haris

Just ran across this. If you scroll down to the middle Milton "Fenwick" Friedman addresses this debate quite nicely, and perhaps those who aren't too shy of personally attacking Judge Posner and Becker will refrain from attacking the late Mr. Friedman.

http://www.freetochoose.net/article_1.html

Haris

From the above article:

“Some men just can’t live on that! Or feed and clothe their children! Or pay their medical bills!” This was Shmidlapp at his best.

"We certainly ought to remedy that,” said Fenwick. “No American who wants to work should go hungry because of the objective (and therefore efficient) forces of supply and demand. Let us by all means give and guarantee the poor a minimum income; that does far less economic and political damage than a minimum wage. A minimum income does not discriminate against the black, the illiterate, the inept——”

Jack

Haris..... some agreement:

Jack
It is not a feature of the capitalist system for the government to pay business expenses. I never said that.

........... Agreed

" It's also not a feature of the capitalist system to have the government mandate a living or a minimum wage. If the government wants to mandate such things, it should bear the costs for it. If the taxpayer doesn't want to pay for it, they can elect a government that feels differently. I'm pretty sure that's how democracy is designed to work."

....... not agreed. Goverment (our Reps) simply see that capitalism has a number of flaws, one of which is a failure of "the market" both at the top and bottom of the wage scale. Don't believe it? Then in a decade when corporate profits are up and CEO and upper exec compensations have soared, is there any explanation for the lower wages to have been flat, and even follow the declining value of the min wage down? I would speculate that the productivity of say fast food workers and others is at least as great as it was a decade ago and most likely higher. Meanwhile CEO pay has soared from 80 times worker pay in 1980 to 500 times this year. Again, I'm speculating but I doubt the productivity of CEOs changed by a fraction of that increase. Also, I'd speculate that the talents to enhance or ruin a company have not become more scarce in the interim. Most economic texts confirm that individual low skilled workers have no market power thus, either a min wage or collective bargaining is the only means of adjusting things.

"Second, the taxpayer will bear the costs of everything anyway, whether it's the EITC or the minimum wage."

...... not agreed. And this is important. Today I ate in a cafe where the employees do pretty well and are not eligible for EITC. The other day I dined at a friend's home, but on each day I passed by McD's and though I did not stop in a wee bit of my hard-earneds were filched by McD's equally hardworking employees in the form of EITC and a host of other low wage subsidies, plus when their tired bodies fail it is again us who'll chip in for their showing up at the ER after foregoing the preventative care they can not afford.

"At least in the EITC the costs are accounted for as an item in the federal budget, and they're paid for by the top 60% of earners [the bottom 40% pay no federal income tax to begin with]."

...... the last of this touches on one of the negative market distortions that is a threat to a democratic system. Increasingly, as it was not always this way, the ever-widening wage gap has created a class of "earners" and tax-payers, a lower 30% who pay little or no tax and now 10% who are increasingly wards of the state even as they toil 40 hours (or at Walmart 28) per week. The number of problems with this scenario is too lengthy to list. Even for me!

"In the case of the minimum wage, the taxpayer pays for it in his role as a consumer: since the price of inputs has rises, the cost of the final product will rise as well."

........ good that you mention the consumer. But what happens is difficult to predict. First in my example McD's might raise prices if they thought the market would bear it, in which case I'd dine there even less frequently than today and you and I would have a bit less tax burden to pay and hopefully not have to chip in for the healthcare of McD's folk and have those funds to deploy as we wish. But, McD's might look over their biz model either to lower their labor costs via productivity improvements or improve the ambiance of their store or make their product more attractive, or the owner might make a bit less. Lastly, if their biz model is so flawed that it can not compete w/o having others subsidise its labor costs, Great! I liked it better when we had a myriad of locally owned Ma and Pa cafes and drive-ins.

"BTW, Corey: you've correctly identified that most people have no other choice but a minimum wage job. Maybe that's the real problem we should be addressing."

....... Yes! I suppose we should. But say Intel came out with a College Degree Chip wouldn't those "min wage jobs" still have to be done? by someone? Or is their prevalence due to the employer getting the full use of a worker for a third or half of what it costs to maintain him? BTW if you guys get your way and either let the min wage continue to fall or have Unc pick up yet more of the costs I'll "hire" a few too, kinda handy to have a hand around to step and fetch it, shovel my walks, perhaps wash the car at home?

Or so it seems from Lat 60 north, Jack

Haris

"But say Intel came out with a College Degree Chip wouldn't those "min wage jobs" still have to be done?"

Yeah, but the wage would go up because people willing to do it would be scarce. But that's in economic theory, which we abandoned somewhere around "there must be 5% unemployment."

Chris Bourland

In a perfectly competitive market, the analysis would be correct. However, a snapshot of the U.S. economy, using Wal-Mart an illustration, shows that the competitive market model is not the proper framework for the minimum wage increase analysis. Wal-Mart profited $10.3 Billion dollars in 2005. In perfectly competitive markets, normal economic profit exists. Normal economic profit is ultimately zero. The principal is that competition works such that new firms enter the market until no profit can be made. Once that point is achieved (equilibrium), the most efficient firms remain in the economy and the less efficient firms fail and leave. But, Wal-Mart, like most major employers, is not operating in a perfectly competitive market. . Primarily due to the prohibitively expensive start up costs and economies of scale, new firms cannot enter the market to compete, thus the actual company profits exceed normal economic profit. A more accurate analysis should take this into consideration. In short, since there is no foreseeable equilibrium, the minimum wage theories based on purely competitive markets should not apply.

Haris

We don't actually know if Walmart is making supernormal profits, although I'm pretty sure they are. But you have listed accounting profits of $10 billion, not economic profits. Walmart's profit margin is something like 3%, which is probably higher than most retailers. It's true that startup costs and economies of scale create barriers to entry, that hardly affects the minimum wage discussion. Airlines have much higher barriers to entry than grocery stores, and we're not having this discussion there, mostly because airlines are bleeding money because of excessive labor costs. The fact that Walmart makes money isn't grounds for regulation: as Judge Hand said, "the successful competitor, having been urged to compete, must not be turned upon when he wins."

On another note, I'm not sure we should blame Walmart for bad laws. I'm referring here to the distinction between part-time and full-time workers, the key distinction being that full time workers legally get health benefits from the employer. Had Congress not created this distinction, Walmart wouldn't have the incentive to hire mostly part-time workers. Maybe if Congress had written a sensible law [perhaps pro-rated health benefits to part-time workers based on a portion of 40 hours they work or something similar], we wouldn't be creating incentives for companies to avoid contributing to health benefits.

Jack

Ha! Corey is doing a better job of illustrating the case with his wit and humor than I have with lengthy explanations, Guess he can be Senator...... while I'll be stuck drafting the reforms with the policy wonks. Oh well! The comments are getting better.

...Haris sez
Yeah, but the wage would go up because people willing to do it would be scarce. But that's in economic theory, which we abandoned somewhere around "there must be 5% unemployment."

........ we aren't sure of that. Many years ago I found Korean college grads working in the Army PX in Korea. As in the US, during the Depression quite a few went to college because there were no jobs anyway, may as well starve in college. Today looking over the Sunday paper there does seem lots of demand for those with degrees and a decade of experience, but a lot more debt-saddled college grads not finding much. I'd like to think that increasing the skills and education of our work force would improve our productivity and overall standard of living. But which vocation would you advise a young person to persue these days? Something that can't be sub'd out to venues of far lower wages? Or that isn't capped by industry bringing in H1B Visa immigrants? And, we've seen a decade now of healthy corporate profits that have improved wages in the top sectors but has yet to "trickle down" to the lower levels and at the very bottom the min wage has lost 40% of its purchasing power. To top it off, we still have the "new Greenspan" standing on the monetary brakes, making sure that the economy doesn't expand too fast and give those at the bottom any leverage to create "wage inflation." "Soaring salaries at the top?" No problem, those are due to "THE market" and well justified by "productivity increases". Probably should give them another tax break so they'll have enough incentives to stay on the job?

Good comments on Walmart from Chris, and no corporation can be faulted for "working the system". Well, kinda anyway; they all have become sort of "nationless" haven't they with 12,000 of them having tax haven "HQ's" in one very small building in the Cayman's.

Health care delivery became an employer's "responsibilty" as an "unintended" during the wage/price freeze of WWII making the huge mess we have today. Will we play these same cards until the ship goes down? Good topic for another day and for the new Congressional majority.

BTW barrier to entry for airlines is not that high. One of my neighbors began with a travel agency buying blocks of seats and selling them at discount and later began leasing wide bodies to ferry chilly Alaskans to our third largest winter city; Maui. I suspect the stories of those nibbling at the "Bigs" like Jet Blue and other recent startups are somewhat similar. Walmart does have to keep running as it has plenty of competitors, I'd just rather they not do it sweat-shop style on the backs of their underpaid employees and saddle the taxpayers and the communities with subsidizing the employees of such a wealthy company with a good business model. Costco pays, Safeway pays, Walmat can pay and should.


Jack

Lenin

I'm surprised at how little attention is given in any of the contributions--either by Posner or Becker or all the rest--to the empirical literature on the minimum wage. Most of you are applying a simple theory to a much more complicated reality that has been extensively studied.

In the 1980s the consensus view in the discipline was that a 10% increase in the minimum wage (mw) results in 1-3% disemployment for teenage workers. The impact on adult workers was thought to be minimal since most earn quite a bit more than the mw.

Since the early 1990s the consensus in the field of labor economics has broken down, but most studies still find roughly the same results for teenagers and low-skilled adults. For a good summary of the literature, see the contribution by Charles Brown in volume 3B of "Handbook of Labor Economics" (1999).

In assessing the impact of any disemployment produced by the mw, we must bear in mind that there is enormous turnover in the low-wage sector. As a result, the disemployment takes the form not of layoffs but of somewhat increased time looking for a job or reduced hours of employment shared across the mw population.

Hence gains and losses are shared across this population and are not concentrated on a small group. This should make modest increases in the mw palatable because the gains outweigh the costs.

Cid

I find this simply amazing. That all of you people would go to this much trouble trying to not only justify the huge imbalance in pay between classes, but to try and 'prove' how good it is for our economy. Why don't all of you grow some balls and just say what you really mean: "Fuck the poor". That's what you're arguing. How about we take the $2 an hour from the top 1%? Let me guess, if we did the economy would crash, the Sun would burn out, and the planet would be attacked by aliens, right? Here's an idea, why don't you all go "Cheney" yourselves.

james

minimum wahe is WAY too high as it is.. I'm making minimum wage and you're right! We need to scale it back so we dont create economic chaos. As for me I'll be fine picking from dumpsters and stealing, dont you worry... keep your $7.50

Elliot

Wow, your last paragraph (why would the hippy democrats want such a stupid thing?) was one of the laziest things I've seen in print in months. You should be ashamed of yourselves for ending this piece with such a blatant sack of strawmen.

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