September 20, 2003
From the desk of Jane Galt:Monopsony
Regarding minimum wage, Zimran Ahmed, alum of my own beloved University of Chicago Graduate School of Business, points out that there is a case where the minimum wage will make workers better off: in a monopsony labor market. Trouble is, there are very few such markets in our country.
I've had a couple of arguments about the minimum wage by email. One is that employers will effectively form a cartel to keep wage prices down in the absence of a minimum wage. Except that they don't. In the late 1990's, we saw what are generally minimum wage jobs paying far above the minimum wage because their local labor markets were so tight. Theoretically, every fast food retailer in town could have tacitly colluded to keep wages at the minimum. The problem is that that cartel would break down for the same reason cartels always break down: the incentive to cheat is high, and the ability of the other players to punish defectors is minimal. The only still-functioning cartel in the world that exists without the state to enforce cartel agreements is OPEC, and the only reason that works is that the Saudis curtail their own production to offset cheating.
It might seem as if employers could all collude to hold wages down below market levels, but this is only because the current wage is set above the market clearing price, which leads to a surplus of workers and a deficit of jobs, convincing observers that there is a large labor pool willing to work at any price. But the labor pool is not fixed. Any cartel that tried to hold wages far below that clearing price would find themselves engaged in the kind of vicious competition for workers we saw from retailers in the late 1990's, and cheating would raise the price to the market clearing level.
Similarly, people who argued that companies are, in effect, already doing this, and would just do it more if not prevented, have to explain why employers who have shove their wages below the market clearing level have a surplus of applicants for those jobs.
Posted by Jane Galt at September 20, 2003 12:09 PM | TrackBack | Technorati inbound linksThere is one notable monopsony in this country (something I'm trying to rectify)--manned spaceflight.
One needn't resort to a monopsony to find a case where a minimum wage (or increase thereof) will make the workers better off. If the elasticity of labor demand is low, this can happen even in competitive markets. Of course, the demand side of the labor market (shareholders, customers) is unambiguously harmed by the minimum wage, and there's your basic inefficiency. In a monopsony, not only might a minimum wage increase the welfare of workers, but it might also be efficient.
In fact the government does not set minimum wage, McDonalds does. Whatever McDonalds sets as their minimum wage is the floor for wages paid in that area. In 2000, the McDonalds in my neighborhood was unsuccessfully advertising for workers at $12.00 an hour.
I'm sure I agree with you, but your challenge in the last paragraph has me stumped. It's either your typo, or my braino, and I am not sure which. (Nor am I comfortable with my guess)
[ In the late 1990's, we saw what are generally minimum wage jobs paying far above the minimum wage because their local labor markets were so tight. [
Not in states such as Alabama and Tennessee. Jane,
all of the USA is not the same as NYC or Boston or SF, OK?
[... Theoretically, every fast food retailer in town could have tacitly colluded to keep wages at the minimum. ... ]
Yes, and in practice such collusion may have happened in various downscale American locales such as BJ Clinton's home state of Arkansas, whiose proud cap, city and leading town is Little Rock.
[ ...
It might seem as if employers could all collude to hold wages down below market levels, but this is only because the current wage is set above the market clearing price,... ]
Not in all parts of the US.
[... which leads to a surplus of workers ...]
Is there in fact a surplus of workers who are American citzens?
[ ...and a deficit of jobs,... ]
Yes, a deficit ... of jobs that pay a lving wage.
[... convincing observers that there is a large labor pool willing to work at any price. But the labor pool is not fixed. ]
True, the size of the American labor pool is not fixed. More and more desperately poor people from Mexico, Haiti, etc., illegally enter the USA every week, every day, and vie for minimum wage jobs.
[ ... Any cartel that tried to hold wages far below that clearing price would find themselves engaged in the kind of vicious competition for workers we saw from retailers in the late 1990's, ... ]
I didn't observe any vicious competition for retailer workers in Atlanta during the 1990's. Ms. Galt, you really ought to visit Flyover Country, USA sometime.
[ ... and cheating would raise the price to the market clearing level. ]
But the market clearing wage is set by what the most desperate illegale wil work for, not that I want to end a sentence with a preposition.
Ms. Galt, are you trying to build up your portfolio of writing samples to apply for a job with the Cato Insitute or the Heritage Foundation?
In general, if lower wages are the cure-all for economic growth, how come states such as Alabama, Ark., Miss. and Tenn. aren't the richer than Conneticutt?
[ Similarly, people who argued that companies are, in effect, already doing this [ colluding to hold down wages], and would just do it more if not prevented, have to explain why employers who have shove their wages below the market clearing level have a surplus of applicants for those jobs. ]
Because people with some education and experience have higher expectations than to work at MacDonald's and suchlike establishments.
... Market clearing level for minimum wage jobs? Why should wages for various types and skill levels of jobs all have the same market-clearing minimum wage?
Extremely subtle concepts, for wannabe Cato Insitute economists, no?
http://www.epinet.org/content.cfm/issueguides_minwage_minwagefacts
A minimum wage increase would raise the wages of millions of workers.
An estimated 6.9 million workers (5.8% of the workforce) would receive an increase in their hourly wage rate if the minimum wage were raised to $6.65 by 2003.
Due to "spillover effects," the 10.5 million workers (8.7% of the workforce) earning up to a dollar above the minimum would also be likely to benefit from an increase.
Minimum wage increases benefit working families.
The earnings of minimum wage workers are crucial to their families' well-being. Evidence from the 1996-97 minimum wage increase shows that the average minimum wage worker brings home more than half (54%) of his or her family's weekly earnings.
In 1998, almost one million (967,000) single mothers with children under 18 would have benefited from a minimum wage increase to $6.15. Single mothers would benefit disproportionately from an increase -- single mothers are 10% of workers affected by an increase, but they make up only 5.7% of the overall workforce. More than two million married men and women with children under age 18 would also benefit from a one dollar increase.
Adults make up the largest share of workers who would benefit from a minimum wage increase: 68% of workers whose wages would be raised by a minimum wage increase to $6.65 by 2003 are adults (age 20 or older).
Close to half (45.3%) of workers who would benefit from a minimum wage increase work full time and another third (34.0%) work between 20 and 34 hours per week.
Over 60% of wage earners in poor families would benefit from an increase in the minimum wage from $5.15 to $6.15.
Minimum wage increases benefit disadvantaged workers.
Women are the largest group of beneficiaries from a minimum wage increase: 60.6% of workers who would benefit from an increase to $6.65 by 2003 are women. In 1998, an estimated 12.6% of working women would have benefited from a one dollar increase in the minimum wage.
A disproportionate share of minorities would benefit from a minimum wage increase. African Americans represent 11.7% of the total workforce, but are 18.1% of workers affected by an increase. Similarly, 11.3% of the total workforce is Hispanic, but Hispanics are 14.4% of workers affected by an increase.
In 1998, half of the benefits of a minimum wage increase to $6.15 would have gone to workers in households with annual incomes of less than $25,000. In fact, 18% of the benefits would go to households with annual incomes less than $10,000, and another 32% of the benefits would go to households with annual incomes between $10,000 and $25,000.
The benefits of the increase disproportionately help those working households at the bottom of the income scale. Although households in the bottom 20% received only 5% of national income, 35% of the benefits of the 1996-97 minimum wage increase went to these workers. The majority of the benefits (58%) from the increase went to families with working, prime-aged adults in the bottom 40% of the income distribution.
Relatively large shares of the workforce (up to 13.6%) in some Southern and Western states would benefit from an increase to $6.65 in 2003.
A minimum wage increase would help reverse the trend of declining real wages for low-wage workers.
Between 1979 and 1989, a period in which the minimum wage lost 31% of it's real value, the inflation-adjusted wages of low-wage workers (those at the 10th percentile of the wage scale) fell 16.1%. By contrast, between 1989 and 1998, a period in which the minimum wage was raised four times and recovered about one-third of the value it lost in the 1980s, the inflation-adjusted wages of low-wage workers actually rose 6.7%.
Wage inequality has been increasing, in part, because of the declining real value of the minimum wage. Between 1979 and 1992, the declining real value of the minimum wage contributed 22% of the growth in wage inequality between men at the 90th percentile of the wage scale and men at the 10th percentile of the wage scale and 42% of the growth in wage inequality between women at the 90th percentile of the wage scale and women at the 10th percentile of the wage scale.
A minimum wage increase is part of a broad strategy to end poverty.
As welfare reform forces more poor families to rely on their earnings from low-paying jobs, a minimum-wage increase is likely to have a greater impact on reducing poverty.
A recent study of a 1999 state minimum-wage increase in Oregon found that as many as one-half of the welfare recipients entering the workforce in 1998 were likely to have received a raise due to the increase. After the increase, the real hourly starting wages for former welfare recipients rose to $7.23.
The federal Earned Income Tax Credit (EITC) combined with the minimum wage helps to reduce poverty, but the EITC is not a replacement for a minimum-wage increase. Even after a minimum wage increase to $6.15, a woman working the average number of hours worked by poor single mothers (1,164 annually in 1997) would still not reach the poverty line for a family of three ($13,000 in 1998) if she earned the minimum wage and received the EITC and food stamps.
A minimum wage increase from $5.15 to $6.15 would lift nearly 900,000 people out of poverty.
The minimum wage raises the wages of low-income workers in general, not just those below the official poverty line. Many families move in and out of poverty, and near-poor families are also beneficiaries of minimum-wage increases.
The inflation-adjusted value of the minimum wage is 24% lower today than it was in 1979.
Without another increase, the real value of the minimum wage will fall to $4.75 (2000 dollars) by the year 2003 (according to inflation projections by the Congressional Budget Office).
The wages of minimum wage workers have not kept up with the wages of other workers. In 1979, the minimum wage was 62% of the 40th percentile wage, but by 1997, the minimum wage had fallen to 56% of the 40th percentile wage.
There is no evidence of job loss from the last minimum wage increase.
A recent EPI study failed to find any systematic, significant job loss associated with the 1996-97 minimum wage increase. These results are similar to other studies of the 1990-91 federal minimum wage increase, as well as to studies of several state minimum wage increases.
New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. This model recognizes that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.
Sources
Bernstein, Jared and Brocht, Chauna. 2000. The Next Step: The New Minimum Wage Proposals and the Old Opposition. Washington, D.C.: Economic Policy Institute.
Bernstein, Jared and John Schmitt. 1998 Making work pay: the impact of the 1996-97 minimum wage increase. Washington, D.C.: Economic Policy Institute.
Bernstein, Jared, Heidi Hartmann and John Schmitt. 1999. The Minimum Wage Increase: A Working Women's Issue. Washington, D.C.: Economic Policy Institute.
EPI. 2000. Datazone.
Fortin and Lemiuex (1996) as cited in Mishel, Lawrence, Jared Bernstein, and John Schmitt. The State of Working America 1998-99. Washington, D.C.: Economic Policy Institute.
Rasell, Edith, Jared Bernstein and Heather Boushey. 2000. Step up, not out: The case for raising the federal minimum wage for workers in every state. Washington, D.C.: Economic Policy Institute.
Sawhill, Isabel and Adam Thomas. 2001. "A Hand Up for the Bottom Third." Washington, D.C.: The Brookings Institution.
Thompson, Jeff. 1999. Oregon's Increasing Minimum Wage Brings Raises to Former Welfare Recipients and Other Low-Wage Workers Without Job Losses. Oregon Center for Public Policy.
For a printer-friendly (PDF) version of the entire Issue Guide on Minimum Wage, click here.
[ Of course, the demand side of the labor market (shareholders, customers) is unambiguously harmed by the minimum wage, and there's your basic inefficiency. ... ]
But workers are also customers or would-be customers. If the workers don't make much, they can't buy much.
Henry Ford I understood this, even if you latter-day flacks for Social Darwinism don't.
"This model recognizes that employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale. "'
so, IOW, buisness owners simply stop hiring new people, and give them less training when minimum wages increase, and instead investing the money into productivity increases to make their current employees still worth the poay their given.
Congratulations Dave, you've just stopped Job creation dead. I'm sure all those poor impoverished people looking for a job will be grateful for that.
"But workers are also customers or would-be customers. If the workers don't make much, they can't buy much."
They still can't buy much, as you've just raised the price of any poroduct associated with the low wages market. It comes out a wash.
Henry Ford I understood this, even if you latter-day flacks for Social Darwinism don't."
And now your just being a nasty asshat. What, Meagan turn you down for a date, and now your bitter?
Jake, That's a wonderful point!
You can set wages wherever by law; but in the marketplace, people know what they can get for exchanging skilled and unskilled labor for a wage.
Even more interesting is how some families (large) cope with low wages because everyone puts their wages into one pool.
Now, we live in a world where people manage to keep what's there's even in marriage. And, certainly within 'living arrangements.'
When families DON'T save, and don't work together, your economy is in a heap of trouble.
Probably, a more interesting focus is on the schools. Which work now to keep some of the adult/kids off the streets. Where they're basically unemployable. And, there's no skills taught at school that helps them apprentership to anything.
Then, where we used to have technical schools, especially in nursing, it became cheaper to import labor from friendly countries, at least if English is taught.
We've created a terrible funnel. Kids come into the system, and get stymied. Was it always so?
Labor moves freely only when the supply is LESS than the demand. Like the Black Death in Europe that opened the gates for skilled craftsmen. And, cut into the Pope's religious machinery. Though it took hundreds of years to actually forment.
Still that's the stuff that is the basis of our modern, Western World.
Anyway, it's not the minimum wage that lies at the heart of our problems, it's the increases, due to the expense of oil, that contaminates the costs of everything. From manufacturings. To a person's own needs to travel. It's the beast that the Saudis' own.
However, the Saudis, for all their OPEC smarts, have overshot the mark. Jim Rogers, in Adventure Capitalist, his book that details his trip around the world; and where he had a visa to get into Saudi Arabia, to boot, MENTIONS that they are in debt up to their ying/yang. They curtail supply because they need HIGH prices. Or their debt consumes them in ten years.
DEBT'S YOUR ENEMY. Worth remembering this basic rule. Companies, in debt, can't get out of their holes. Even if wages are kept down. And, if wages go up, along with other costs, then, across the board, you've got to expect PAYING MORE FOR YOUR STUFF. Or, what are ya gonna do? Plant a garden?
"But workers are also customers or would-be customers. If the workers don't make much, they can't buy much.
Henry Ford I understood this, even if you latter-day flacks for Social Darwinism don't."
That's actually a myth that has persisted among the ill-informed lo these many years. Ford did find that paying higher wages made his company more profitable, but that was because of efficiency-wage and training effects, not because his workers could afford his products only if he paid them extra. That would be, if you bothered to think about it, simply a roundabout way of giving your product away for free -- not exactly a business model with much to recommend it.
David Davenport:
Economic Policy Institute is not an acceptable reference. They are well know for falsifying their data.
but Jake, We shouldn't hold him to such high standards as using credible "sources". We know he can't hit 'em
Even if "Cato Institute" were the devastatingly effective term of abuse Mr. Davenport imagines it to be, just one mention would have been plenty.
I think we need to get David Davenport his own blog.
But the market clearing wage is set by what the most desperate illegale wil work for, not that I want to end a sentence with a preposition.
I'm not sure it makes sense to talk about a market-clearing wage; it's not like all labor is interchangeable. In the context of this minimum wage discussion, we can define a "market clearing minimum wage" as one that doesn't leave any willing workers without a job. Which means, in effect, that we have no minimum wage, or that the minimum wage is whatever the lowest paid worker in the economy is getting.
In that sense, then, yes, the lowest wage would probably go to some desperate, uneducated, illegal alien. Except that businesses get in trouble for hiring illegal aliens, so maybe not.
But David, as Jane explained, this does not drag all other wages down with it. We would expect competition to maintain the wages of more productive employees even as it reduces the wages of less productive ones.
In general, if lower wages are the cure-all for economic growth, how come states such as Alabama, Ark., Miss. and Tenn. aren't the richer than Conneticutt?
I dunno, Glenn Reynolds seems to have a pretty nice lifestyle, and he doesn't have a state income tax, either. Average income is certainly higher in Connecticut than most other states, but so are living expenses, and probably average commute time (pollution levels, noise...).
But regardless, lower wages are not a cure-all. Removing the minimum wage laws would help the unemployment problem, since people who can't get work now would be able to. Probably part of the unemployment problem in Alabama, et al, is caused by the Federally-set minimum wage, which does not take into account lower living expenses in some parts of the country. A minimum wage job does pay a living wage in many (most?) parts of Alabama, but it would be pretty hard to manage here in the DC suburbs, let alone NY or San Francisco.
FWIW, this CNN chart shows that Alabama (5.7%), Arkansas (5.5), and Tennessee (5.0) have unemployment rates below the national average (6.2); Mississippi, at 7.2%, is well over it. Tennessee even beats Connecticut (5.2).
And the four states you mention all grew by more than 10% during the 1990s (Tennessee grew by 16.7%); Connecticut grew by only 3.6%. (Numbers from Ameristat. Scroll down to the text/Excel files if you want numbers rather than pretty maps.)
I think Milwaukee fits David Davenport's notion of flyover country. Four years ago suburban McDonalds on the bus lines from the inner city had signs out front offering $7.00 per hour and a $500 retention bonus. One local fast food operation (Oscar's Frozen Custard) had not only stacks of job applications on the counter, but also W4 tax forms, to reduce the lag on starting new employees.
Making it illegal to employ anyone worth less than $6.65 per hour will have repercussions thruout the labor market. My wife is a geriatric nursing aide. With wages at twice minimum, and full time benefits available for a 32 hour week, there is a chronic labor shortage. Flipping a bedridden person does not take a lot more skill than flipping burgers, but the unpleasant aspects of the job drive up the price of labor. Wages will have to remain at least as far above those for other low end jobs as they are now or people will decide they don't need to put up with the literally sh!tty work.
The example above distributing a hypothetical Bill Gates's income among 210 other people is bogus; try distributing his wealth across all Microsoft customers and see how much difference it would really make. When the UAL machinists were indicating they would consider destroying the company rather than compromise on wages, I ran the numbers for redistributing the airline CEO's millions in wages among every company employee. It came to about $35 per person per year.
One aspect I don't see much discussed in this blog (or others) is the subsidizing of capitalistic theory.
My husband works (as a salaried employee) for a food service company that hires many hourly employees at a university environment. The hourly employees are laid off during the summer (and receive *unemployment benefits*). Isn't this a tax-payer subsidy to the company? (i.e., allowing them to hire workers who, without the unemployment benefits, 1) wouldn't accept the job, or 2) would demand a higher wage during the 9-months of employment to off-set the summer lay-off).
I agree, there are market forces in play here. However, what I DON'T see acknowledged is that there really isn't a free capitalistic market in existence, and it seems to me, many economists are proponents of a capitalistic system that is heavily subsidized via various mechanisms without speaking to such complexities.
I would appreciate seeing more commentary to this effect, as I'm sure Jane is better equiped to address these issues than am I.
cj - As a general rule, unemployment benefits are fully paid for by the portion of the payroll taxes set out for that purpose. Only during times of recession, when unemployment benefits are frequently extended, do taxpayers subsidize the benefits out of general tax revenues. In most states, the part of the payroll tax that goes to "unemployment insurance" and is "experience rated". That is, your husband's employer likely pays a lot higher taxes because it lays off so many employees each summer. That being the case, I doubt very much that your husband's company is being subsidized by the taxpayers.
True, the size of the American labor pool is not fixed. More and more desperately poor people from Mexico, Haiti, etc., illegally enter the USA every week, every day, and vie for minimum wage jobs.
I have much trouble taking this argument seriously. In the river valley region a few miles from where I live, we attract many such illegal Mexican immigrants:
These, on account of not having immigration paperwork, do NOT vie for minimum wage jobs. Rather, they vie for seasonal agricultural jobs, many of which will let you begin working for direct cash paychecks with a "I'll need to see your papers eventually" promise that is magically called on carpet sometime in early September, at which point the illegals winter up with kinfolk or head back south.
You won't get past the interview process at Wendy's without having the necessary personal serial numbers to sign a W-4, but you can probably work in the fields for a couple months.
The desire of these illegals to gain income through any means, such as by hand-picking stinking cabbage heads under 85F+ direct sunlight, is not being heavily contested by the local "official" minimum-wage labor pool. These prefer, and don't seem to have any trouble acquiring, positions at McDonalds, Wal-Mart, Albertson's, etc.
And whaddya know, the illegal field workers also eat food and wear clothes, hence tend to buy heavily from those merchants during the very same time period that the local teens are most desirous of temporary work.
This arrangent, while violating the letter of the law, suits me just fine. The alternative is to strictly enforce employment laws on every farmer in the region, which (after a fantastic amount of taxpayer monies were chewed in the gears of the enforcement bureacracy) probably would discourage illegals from moving into the area but would also harm the local economy. No typical teen from the dominant non-illegal demographic in the area (lower-middle and middle class) is going to go out in the fields for minimum wage, unless he/she is literally starving to death.
So the farms would have to raise their wage offerings substantially in order to compete with the benefits of shelving merchandise in an air-conditioned Kmart store. Net result? Either (a) the cost of summer produce increases a lot as the farms recoup their increased production costs, or far more likely, (b) the grocers buy exclusively from lower-cost agricultural conglomerates and put the local farmers out of business. Concomitantly in either case local grocer and dry-goods businesses lose the summer income the illegals provide and cannot afford to staff as many seasonal positions.
A perfect lose-lose situation, it would seem.
anony-mouse,
In the Washington, DC area the great proportion of
lower paying jobs -- construction, fast-food, garbage
collection, house cleaning -- are filled by recent
immigrants from central america. Most have papers but
I think in some industries, in particular construction,
a percentage are here illegally. If I go to McDonalds
frequently all the staff are from central america.
I've wondered why there isn't an influx of native-born
americans from regions where unemployment is high, for
example nearby West Virginia. I believe housing is the
reason. In the greater DC metro zoning has had the effect
of making new low-income housing more-or-less illegal.
Immigrants are willing to live three or four families
per single-family residence and native americans aren't.
I don't know where local school students work part-time
or even if they do. Here what would be the nornal student
jobs elsewhere seem to be filled by adults.
I'm not an economist, although I've been casually
struggling to understand the subject for some
time. It seems to me intuitively that measures
like raising the minimum wage are inherently
self-defeating.
Instead it seems to me that those who are concerned
for the poor and middle-class might more profitably
exercise their intellect by looking at how our
economy is organized, in particular where the money
is going.
There is great variation in human ability. I can
easily for example believe that one person might
be fifty times more effective at doing some task
than another, but if we look at our real economy
it seems to be saying there are some people that
are a thousand times more productive than others
or even ten-thousand.
But how can that be? Are such real disparities
in human ability really possible? (I'm comparing
here intact human beings. I'm not including those
that can't do anything. If we were to start from
zero, any multiple would be reasonable.)
No I think there is something strange going on
here. And that strangeness is monopoly or situations
like monopoly.
I don't have an original message here. It's already
been said. But somehow the message isn't being
understood.
If we allow a producer of something people value
to bar others from engaging in that activity then
not only are the opportunities of everyone else reduced
(this is one activity less that they can engage in)
but the producer is likely to become rich, that is
be valued at an extraordinarily high multiple
compared to others. What drives that concentration
of wealth isn't actually what the producer makes but
what he prevents others from doing.
So on top of everything else the monopoly actually
impoverishes society overall because of lost production.
It's my sense that behind nearly every extraordinary
concentration of wealth lies a monopoly or something
akin to monopoly either now or in the past. This hurts
people in general because of the cumulative mass of
opportunities, of potential occupations, that they
have lost.
The incremental opportunity cost of any one monopoly
on any one person is likely to be small, but the
cumulative weight of many will be large.
Now some may be asking what this has to do with
minimum wage or the lower stratum of the working
population. The connection is that monopoly makes
these workers unwanted. The larger the proportion
of the economy locked in monopoly the more every
one else has to crowd into the sectors still open
which means a surplus of labor which means low
wages.
If we could somehow wipe out monopolies and related
things with a wand, there would be a suck upward
for most of the population because there would be
so many new possible occupations from which they
were previously barred. In many cases people would
need to learn, to grow, in order to take advantage
of the new openings, and the young would be better
positioned than the old and it would take much
time for the new economy to fully unfold.
Unfortunately there is no such wand and monopolies
and related things in particular are often hard to
identify and further take many forms and may be hard
conceptually to specifically legislate against.
So if monopolies make a difficult target, is there
a proxy that can be legislated against instead?
Yes, and that is simple "largeness."
Monopolies are harmful proportional to their size
and legislating against largeness would more or
less knock out the monopolies. The problem is that
not all large institutions are monopolies, there
are certain activities that seem to demand largeness.
My belief is that we would gain more by
getting rid of monopoly than we would lose from
penalties on large companies. I also wonder if we
might discover with time that constellations of
small enterprises would first meet and then surpass the
output of the large institutions they replace.
Anyway the practical, simple remedy that this
boils down to is taxing enterprises on their
gross sales within the U.S. and at a progressively
increasing rate dependent on their gross sales,
with entities having sales below a cutoff having
no tax at all.
Yes, it really is possible for some people to be over a thousand times more productive than others.
As a simple example, think of an inventor who invents a cure for a disease, or Thomas Edison, or inventors of AIDS drugs.
Or how about Michael Jordan. Sure, he's probably only 3 times as fast at dribbling a basketball than my mother, but who would pay money to see her?
A couple of folks have emailed me to ask what I mean by “efficiency-wage and training effects” in my post above. I realize that Mr. Davenport is likely utterly uninterested in the facts of the Ford case, but there are facts nevertheless and some might even find them interesting. I should add that this is my recollection of a couple of papers on the subject that I read some years ago, and that I’m not well informed on current scholarship on the topic. Here goes:
It seems that there were three important features of a job on the assembly line at an early Ford plant. First, there was a whole lot of learning-by-doing. A new hire wasn’t very productive at all; it took quite some time before a worker learned how to complete his tasks quickly and well. Second, work on the line went as quickly as the slowest worker. A slow, new worker slowed down the whole line and reduced everyone’s productivity. Third, a job on the line was nobody’s idea of a good time. The work was physically and mentally demanding, and at the same time incredibly monotonous and boring, punctuated by occasional physical danger.
So when Ford offered wages comparable to wages offered by other carmakers and other types of businesses, it is little wonder that he experienced high rates of worker turnover. A job on the Ford line was much more unpleasant than other types of work, and if the wage was comparable, it didn’t take too long for many people to quit and seek work elsewhere. Thus, Ford faced a constant inflow of new workers. This was incredibly detrimental to the productivity of the line, for reasons discussed above.
Ford quickly hit upon the stratagem of paying his workers higher wages in order to retain them. At a higher wage, workers were willing to endure the unpleasantness of work on the line long enough to become experienced and skilled at completing their tasks, which allowed the line to move more quickly and increased productivity.
This story has interesting implications for the minimum wage. The key insight is that Ford’s strategy was successful not because he offered employees a high wage, but because he offered employees a wage considerably higher than their prospective wages in alternative employment. Thus, one cannot generalize from the Ford case (higher wages for one company relative to others results in increased productivity for that company) to the entire economy (higher wages for all workers results in increased productivity overall).
Don,
But the productivity of basketball isn't measured in
the number of dribbles, else your mother would be
valued at one-third of Michael Jordan. Instead the
point of sports is winning and in given game there's
only one winner.
There are plenty of areas in economics that are also
winner-take-all but usually that means we are talking
some approximation of monopoly. In monopoly as in sports
there's one (or sometimes a few winners).
Although the real value of Thomas Edison's work or
the developers of AIDS drugs is thousands of times
greater than the work of the average intact adult,
I don't believe Thomas Edison or for sure the developers
of AIDS drugs are or were reimbursed at multiples of
thousand times the income of the average man. That's
because it's one thing to do something, quite another
area of expertise to turn it into money in the bank.
In fact it's interesting that you should bring up
inventors as an example because inventors are,
with rare exceptions, poorly paid. Especially in comparison
to the value of their inventions to society at
large.
CEOs of large corporations are like Michael Jordan
in that their superstar salaries are being paid
in the hopes that they will win in games where there
can be few winners.
Jane,
I'm still trying to understand what you meant by
"..explain why employers who have shove their wages below the market clearing level have a surplus of applicants for those jobs."
If "shove" should be "shoved" wouldn't that produce a shortage of applicants?
"But the productivity of basketball isn't measured in
the number of dribbles, else your mother would be
valued at one-third of Michael Jordan. Instead the
point of sports is winning and in given game there's
only one winner."
The point of sports is not winning. It's entertainment. Every game has thousands of winners.
"There are plenty of areas in economics that are also
winner-take-all but usually that means we are talking
some approximation of monopoly."
You keep using that word. I do not think it means what you think it means.
"In fact it's interesting that you should bring up
inventors as an example..."
I didn't. Mr. Davenport did. I merely explained that the empirical evidence does not support the position he was attempting to support.
Don,
I'm sorry. I meant to address "gazzer."
But I'll address your arguments.
First although spectators may enjoy
watching games I was referring to
financial return.
As for "monopoly" I agree the common
meaning today is more narrow than what
I'm attempting to convey. I hoped that
when I said "semi-monopoly" and "things
like monopoly" that I was conveying that
I didn't mean the term in a narrow
sense. Even so the reason these things
related to monopoly are a problem is the
same or close kin to the reason monopoly
narrowly construed is a problem.
If you know a better word or phrase
to describe what I mean please volunteer
it.
Well, Mark, I'm not really sure what you mean when you say "monopoly". But I have some idea what kinds of policies you advocate. I don't want to put words in your mouth, but would you "prohibit a variety of practices that restrain trade, such as price-fixing conspiracies, corporate mergers likely to reduce the competitive vigor of particular markets, and predatory acts designed to achieve or maintain monopoly power"? Would you make such policies "apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing"?
Don,
These remedies you mention are for sure
better than nothing. Likely they have
something to do with why we are a wealthier
people than most and why less of our
economy is locked up in monopoly, in
the older meaning of the term, than
most other nations on earth. But still
I see many problems with the policies
you describe. Not so much with the intent
but the practicalities of implementing
them.
The basic problem is that they all rely
on the courts. Any dispute going to a
court is an expensive undertaking. This
means a tendency to look at only the
most egregious cases. Further the law
always has an arbitrary component, a
certain roll the dice aspect, because
so much depends on the character of the
judge, the jury (if any), and the
particular lawyers. Because money buys
good lawyers the tendency is for legal
proceedings to favor the deeper pockets.
Further many of the remedies you mention
require the Attorney General to initiate
an action. Neither political party likes
to pursue action against those that donate
money. And so far as I am aware neither
the Democratic nor the Republican
parties are particularly aggressive in
pursuing these remedies.
I would far rather have a process that
is non-arbitrary, automatic, low cost
and that actually substantially discourages
monopoly, in its older meaning, rather
than just nibbling around the edges.
"I would far rather have a process that
is non-arbitrary, automatic, low cost
and that actually substantially discourages
monopoly, in its older meaning..."
Jeebus, Mark, I still have no idea what you're talking about. (I somewhat suspect that you don't, either. But I'm willing to suspend judgement for a bit).
Please provide a definition of "monopoly, in its older meaning." I'd certainly appreciate it (along with the logicians of the world) if you did not use the word "monopoly" in defining "monopoly".
Bernard, that's the point: people who are arguing that the minimum wage is lower than the market clearing level have to explain why there is a surplus, rather than a shortage, of applicants for those jobs.
Of course, the original monopolies were government-granted privileges to engage in a particular line of business without competition.
Jake, when you say, "Economic Policy Institute is not an acceptable reference. They are well know for falsifying their data." could you elaborate? (Evidently it's not "well known" enough, because I'm not aware of it.) I've never trusted their methodologies, but I've just found them to be shoddy, not fraudulent. If there are some examples, I'd like to hear of them.
Don,
If you'll go back to the second message
I posted on this thread, you'll find at
the end, this:
"Anyway the practical, simple remedy that this
boils down to is taxing enterprises on their
gross sales within the U.S. and at a progressively
increasing rate dependent on their gross sales,
with entities having sales below a cutoff having
no tax at all."
That is what I was referring to when I said:
"I would far rather have a process that
is non-arbitrary, automatic, low cost
and that actually substantially discourages
monopoly, in its older meaning..."
If that doesn't make it clearer, I don't
want to repeat the messages in total, so
would you please reread them before responding.
As for a definition of monopoly, hmmm, something
like this:
A barrier to production or employment that
discourages new actors from entering a field.
Such a barrier, to the extent it's effective,
diminishes the opportunities of those blocked.
The fewer the actors producing a product or
a service and the greater the number of actors
who might otherwise enter the field absent
those barriers then the higher the level of
monopoly. The limiting case is one actor
who produces all of something and that is
the meaning of the word as normally taken
today, but I am suggesting we include the
whole cline, except with the focus and the
weight of the word at the high-barrier end.
Adam Smith uses the word in a similar way.
He doesn't define it, he just uses it, and
although at some points he does refer
to what David Nieporent mentioned, "government-
granted privileges to engage in a particular
line of business without competition," he
also uses it in the sense I try to describe
above. He may have been unique in this
respect, but I doubt it. Thus my reference
to monopoly "in its older meaning."
There's also the argument of practicality.
When people can argue with all sincerity that
Microsoft is not a monopoly then I think
that demonstrates rather well that the
narrowly-construed meaning has nearly
no practical utility.
The real point here is that I'm trying to
communicate an idea. I'm having difficulty
with the vocabulary. The word monopoly is
the closest approximation to what I'm
trying to get across and it may at one
time have referred much the same
idea.
Mark:
Taxing companies based on gross sales seems like a dangerous answer--grocery companies do a huge amount of business, but with margins that are famously low. Airlines do a huge business which generally isn't profitible at all. It would be odd to tax these industries more heavily than some highly profitible industry with lower overall sales.
The definition of monopoly in terms of barriers to entry is also problematic. Airlines have much higher barriers to entry than grocery companies (jets are expensive, routes must be approved by FAA), but neither industry is particularly monopolistic except in very small markets.
It is also entirely possible to imagine a company with small sales which would not qualify it for the anti-monopoly gross sales tax, but which might be monopolistic. A specialty manufacturer of some sort would probably qualify (I'm thinking here of the suppliers of some kinds of scientific equipment, with whom I have some experience).
I don't mean to be a pain, but it's hard to discuss something if you can't say what it is.
Rob,
I know it's possible to have a small monopoly
but the injury to other interests that such
a monopoly does is likewise small. What I'm
trying to reach for here is a practical remedy,
not some perfect ideal of fairness. It may be
the case that a small company with few customers
can somehow create a barrier to others entering
their market, although given the few customers
how many are going to be interested?, but the
obvious remedy, someone judging who is and
is not monopolistic, seems worse than the disease.
In a similar manner I'm aware that a gross sales
tax puts a heavier burden on some industries
than others. My rationale for nevertheless
proposing such a thing is that every possibility
I've been able to conceive ends up not being
'fair' in some way or other. The gross sales
tax turns out to be the simplest to implement
and partly because of that suffers from the
fewest negative side-effects.
At least this is the best possibility I feel
I've yet come up with.
In the specific case of grocery stores remember
I suggested a cutoff below which there would
be no gross sales tax at all. I'd actually like
that cutoff to be quite high. Enough so that
most businesses have no gross sales tax at all.
Such a scheme would favor independent grocery
stores and be a heavy burden on grocery store
chains.
The gross sales tax would have a heavier impact
on the airline industry. Even the smallest
feasible airline might still be feeling it.
If that's the case then such tax would fall
heavier on the airline industry than alternatives
such as driving a car.
Or that may be overstating things. Perhaps there
are many ways an airline can split up small and
still function. Spin off the ticketing, the
baggage handling, the jet maintenance, the
stewardesses as separate companies. The airlines
proper then just become sets of jets and pilots.
Under a progressive gross sales tax the goal
of everyone becomes to get down around the
cutoff point. Which is a good reason, to
preserve the possible benefits of largeness, for
that cutoff point to be fairly high.
Since every airline would be doing the same,
we can imagine that big airports would have
many baggage handling companies competing
with each other for the multiple airlines
business. As one example of the benefits
of a market we might anticipate that baggage
handling would improve.
Rob, you say that airlines aren't monopolistic
despite high barriers to entry.
I think high barriers to entry make an industry
especially vulnerable to consolidation. I wouldn't
be surprised if such isn't occuring right now,
especially if the industry is overall operating
at a loss. Even if you don't perceive the monopoly
the fact is those barriers turn away new actors
that might want to participate. We have no way
of knowing what the industry would look like
without the barriers so it is hard to know for
sure what the barrier cost is.
I'm pleased with this measuring of monopoly
by barriers. It is what I'm trying to get at,
whether or not 'monopoly' is the right word.
Keep your definitions simple, folks. A monopoly is the supplier in a market with one supplier, from whom all must buy; a monopsony is the customer in a market with one customer, to whom all must sell. How you get there (natural barriers to entry, the heavy hand of government, Bill Gates selling his soul to Satan) is a separate question.
On thousand fold productivity differences:
Monopoly isn't close to being required for a very large class of workers with whom I'm familiar, in information technology.
Let's say Visa is hiring a system administrator to run its credit card processing mainframes. There are two choices -- Alex, the average, and Oliver, the outstanding. In case of catastrophic failure, Oliver can fix things in fifteen minutes, Alex can fix things in twenty. The nature of the work is such that hiring two people at Alex's level will barely budge the time-to-fix, three people might cut it down another minute, but four and higher causes the time to fix to become worse as the system admins argue over the best course of action, fight over the keyboard, etc.
Although Olivor is "on appearance" merely a third more productive than Alex, Visa would not blink at paying him twenty times more, as that extra five minutes of downtime would cost them millions of dollars.
The key here is that
A) This work is essentially serial in nature. Multiples of Alexes aren't going to help.
B) The serial work is a bottleneck. Tens of thousands of cashiers are hanging around waiting while the system is having its functionality restored.
Hope this helps!
Yours truly,
Jeffrey Boulier
You should read Alan manning's book 'Monopsony in Motion.' He argues both that monopsony is pretty pervasive, though the impact on wages (And implications for minimum wage laws) is ambiguous.
It's rather sad how libertarian types confine their discussions of minimum wage to simplistic microeconomic-theoretic arguments. When those fail, they resort to the great Satan government to explain the discrepancy.
Real-world research has shown no loss of jobs during minimum wage hiikes in the past (roughly) 40 years. If that's true, why shouldn't minimum wages be raised somewhat to help alleviate social problems?
"Real-world research has shown no loss of jobs during minimum wage hiikes in the past (roughly) 40 years. If that's true, why shouldn't minimum wages be raised somewhat to help alleviate social problems?"
It would take a quite biased reading of the empirical literature on minimum wage effects to conclude that 'research has shown no loss of jobs'. There have been some research papers that have shown no statistically significant loss of jobs, but other papers have shown significant effects.
Moreover, potential job losses are only a fraction of the costs of a minimum wage.
Coming back to the issue of CEO pay ...
Is there a cartel of suppliers for CEO-candidates that artificially limits the available supply?
A model: Suppose only Harvard, Yale, and Stanford produce the "raw material" of a CEO, that only GE, Proctor and Gamble, or IBM "process" the material into experienced managers, and finally that only AOL/TimeWarner
"rates" managers in order of charisma, newsworthyness, looking-good-on-TV, etc.
If such a model applied, wouldn't the pool of candidates be much more limited than if anybody
could work his way up to the summit? (like, say,
the recently canned Mr Grasso at the NYSE.) And wouldn't the consequence then logically be that the pay rates for those lucky few would be higher than would be the case if any of the various filters were eliminated?
What Don said.
Also, where's the evidence that minimum wage hikes "alleviate social problems"? Are underpaid teenagers a "social problem"?
Jane,
You mention that OPEC is a cartel. OPEC produces about 25 million barrels of oil a day while the rest of the world produces around 50 million barrels of oil a day. OPEC controls roughly 1/3 of global production. How does this make OPEC a cartel? Granted that the collective activities of OPEC members can have an impact (positive and negative) on oil demand/supply balances, OPEC is not in charge. OPEC stopped being a cartel back in the 1970s and now only exists as such in the minds of the uninformed.
Get rid of minimum wage, drastically curtail welfare (and other social programs), then expand the earned income credit (negative income tax). You have to work to get it (removes incentive to do nothing), doesn't distort the labor market (as much), promotes self reliance(you have to work, promotes social virtue as opposed to vice (working instead of free riding), and reduces government nannyism (people spend their money on what they need/want instead applying for programs and handouts).
I can't see the downside to this. Somebody help me...
Keep your definitions simple, folks. From Webster: a cartel is "a combination of independent commercial or industrial enterprises designed to limit competition or fix prices"; "a combination of political groups for common action." OPEC still qualifies under both, I think. How successful or effective a cartel OPEC is is, again, a separate question.
The worthy Mr. Davenport provides us much to ruminate upon. Gleaning through his offerings, however, I find he advances a few points which seem to undermine his overall argument.
First, his statement:
Because people with some education and experience have higher expectations than to work at MacDonald's and suchlike establishments.
Isn't this a sign that the going wage is sufficient? Most of the individuals I know have higher expectations than to work at their current position -- is this not part of the human situation? If one may not just hope but expect, with a modicum of training, to find a better job, then aren't jobs plentiful enough? When I was unemployed, I saw would-be workers (including myself!) were not even considering jobs that paid below a certain personal standard, preferring to spend months or even years searching for something better suited to their desired lifestyle. In a truly desperate job market (as I have witnessed in other regions), people take what they get and are grateful for it, lowering lifestyle to meet their means.
The second point is: What exactly defines a living wage? www.livingwagecampaign.org gives a set of guidelines that revolve around a 40 hour week and certain poverty guidelines. What standard of living might one expect, and how much time might one expect to spend earning it? Many individuals who risk their life to experience such a lifestyle for a limited time (while often sending money home to their families), it would seem that minimum wage, as it is, is at least adequate to keep body and soul together.
I in the past earned and lived for a time on minimum wage myself, and not just as a teenager. I avoided malnourishment, and managed to even enjoy a few luxuries, but on the other hand, I did not enjoy my standard of living, and moved to better paying opportunities as soon as I could.
Mr. Davenport has delighted and illuminated us a great deal in this thread...Would it be asking too much for him to further address these points?
First of all, if labor demand elasticities are low the minimum wage will transfer lots of money to workers with very little employment loss. Since just about every peer-reviewed study ever done finds that labor demand elasticities in U.S. low wage labor markets are quite low (-.1 to -.15 is about the highest -- in absolute value -- that people tend to find), this means that the minimum wage is not likely to cause that much unemployment. (Although this says nothing about how much it will reduce profits or increase prices).
Second, at least some monopsony power is very common in labor markets. Do you believe that every worker at your firm would quit their job if your employer reduced wages by, say, 10% below the going rate? If your answer is "no", you believe in at least some level of monopsony power. The question is how much. I'll buy that monopsony power is low, but I won't buy that it doesn't exist. Remember, the technical definition of monopsony is just that the firm has *any* freedom in setting wages, and isn't totally constrained by the market wage.
Finally, the Economic Policy Institute is one of the Washington think tanks that (unlike Heritage, etc.) is extremely trustworthy and credible. I'd like to see a single example of them "faking their data" (as opposed to disagreeing with some libertarians ideological conclusions). If you don't believe them, believe all the peer-reviewed stuff they cite.
"Congratulations Dave, you've just stopped Job creation dead. I'm sure all those poor impoverished people looking for a job will be grateful for that. "
Yet the min. wage has been falling each year as inflation acts as a de facto cut. Has work at the lower end of the market gotten all that better for it? Have we created an orgy of jobs?
What's missed in arguments about the min. wage is that proposed increases are typically very tiny. I have no doubt that a huge increase (say to a so-called 'living wage') will have the classical economic effect (fewer jobs). However a modest wage increase may allow us to get away with a 'free lunch'. More money for the poorest workers without hurting employment or business in any significant way.
There was a study a while ago that compared two nearby towns in NJ and PA. NJ increased its min. wage while PA did not. Even though the relevant variables were similar for both towns (income, class, education & other demographics) the study found not only was there no decrease in min. wage employment but there was actually an increase!
I've suspected that there may be 'hidden inefficiences' in the private sector that may prevent the simple classical models from working in tiny scales.
"Second, at least some monopsony power is very common in labor markets. Do you believe that every worker at your firm would quit their job if your employer reduced wages by, say, 10% below the going rate? If your answer is "no", you believe in at least some level of monopsony power. The question is how much."
But Marcus, by the same token, do you believe that your firm would fire everybody if they all demanded a 10% raise? If your answer is "no", you believe in at least some level of monopoly power on the part of some labor suppliers. The question is how much.
There are clearly many instances of such a bilateral monopoly situation, and there's no reason to believe that splitting the resulting surplus is likely to favor the supply side or the demand side.
Moreover, the monopsonies you postulate are, arguably, least likely in the unskilled labor market where there are many firms and training is quick and inexpensive.
{ Congratulations Dave, you've just stopped Job creation dead. I'm sure all those poor impoverished people looking for a job will be grateful for that. ... ]
If they're illegal aliens, I on't care if their feelings are. The not-very-USA dones not more Mexicans permanently residing on this side of the border.
[...You won't get past the interview process at Wendy's without having the necessary personal serial numbers to sign a W-4, ... ]
Wrong on the facts. Some fast food places do hire illegales.
[... but you can probably work in the fields for a couple months. ...]
That's what God created Mexicans for. Why not permanently assign these unfortunate persons to the oversight of a kindly master? In that case, they wouldn't have to migrat back and fort6h across the border to and from El Norte.
[... My belief is that we would gain more by
getting rid of monopoly than we would lose from
penalties on large companies. I also wonder if we
might discover with time that constellations of
small enterprises would first meet and then surpass the
output of the large institutions they replace....]
Yes, and don't you think big city public school systems fit the definition of monopoly?
[ Or how about Michael Jordan. Sure, he's probably only 3 times as fast at dribbling a basketball than my mother, but who would pay money to see her? ]
Or how about Dicky Grasso, formerly of the NYSE?
[ ... Many individuals who risk their life to experience such a lifestyle for a limited time (while often sending money home to their families), it would seem that minimum wage, as it is, is at least adequate to keep body and soul together ... ]
Why are law abiding citizens of the USA required to subsidize foreigners?
Well, Don, I'd suspect that the problem of mutually coordinating the actions of numerous employees stops workers from taking advantage of all their monopoly power, while the management of a firm has no such problem. (The solution to the worker coordination problem is called a "union", but those are increasingly rare and difficult to organize in the U.S. these days). So management generally has the edge in the bilateral monopoly game you refer to. (Although managements market power is of course limited by competition from other employers, I'm not arguing for anything like total monopsony power here, my point is that there is some).
But regardless, the larger point is that the neoclassical model is not a great guide to the workings of the labor market. THe assumption of no frictions at all in dissolving old market relationships or forming new ones is just a little too far from reality. You can learn stuff from it, definitely, but it's extremely unrealistic in ways that matter a lot.
Not in states such as Alabama and Tennessee
It was (and is) true in Memphis... and the last time I checked, Memphis was still in Tennessee.
I note with bemusement that our minimum wage law discussion has been hijacked by the-more-the-merrier immigration fanatics.
Ms. Galt: you seem to be fixated on the premise that one size market-clearing wage fits all. I don't think that's true, even in the neo-classical econ. textbook sense.
...
[ Thus, one cannot generalize from the Ford case (higher wages for one company relative to others results in increased productivity for that company) to the entire economy (higher wages for all workers results in increased productivity overall). ...]
Why can't one generalize thusly, huh? Why not?
Here's what a quick Google search finds:
[http://econpapers.hhs.se/article/ucpjlabec/v_3a5_3ay_3a1987_3ai_3a4_3ap_3as57-86.htm
Did Henry Ford Pay Efficiency Wages?
Journal of Labor Economics, 1987, vol. 5, issue 4, pages S57-86
Daniel M G Raff and Lawrence H Summers
Abstract: The authors examine Henry Ford's introduction of the five-dollar day in 1914 in an effort to evaluate the relevance of efficiency-wag e theories of wage and employment determination. They conclude that t he Ford experience strongly supports the relevance of these theories. Ford's decision to increase wages dramatically is most plausibly the consequence of labor problems of the kind efficiency-wage theorists stress. The structure of the five-dollar day program is consistent with the predictions of efficiency-wage theories. There is vivid eviden ce that the introduction of the five-dollar day resulted in substanti al queues for Ford jobs. Significant increases in Ford productivity a nd profits accompanied the new regime. Copyright 1987 by University of Chicago Press.
View citations in EconPapers ]
"Efficiency wages": paying more than the prevailing standard wages in an industry so as to attract and keep better quality workers and thereby improve the efficiency and productivity of the firm.
In other words, Henry Ford 1st's innovation in 1914 was indeed to pay HIGHER wages, instead of the LOWEST wage with which FoMoCo could get by.
Today's bloodsuckers and malfactors of great wealth in America seem to have completely forgotton this point.
"Why can't one generalize thusly, huh? Why not?"
Sigh.
Three possibilities come to mind in this situation:
1. David Davenport is an idiot.
2. David Davenport is being deliberately dense.
3. I've done a poor job of explaining how efficiency wages work and why you can't generalize to the whole economy.
Re-reading my post, I'm tempted to discard 3, which leaves 1 and 2 (which are empirically undistinguishable). But I could reconsider discarding 3; was my explanation clear? Folks?
I regret I do not understand your question, Mr. Davenport. I was seeking to determine what, exactly, should be considered when setting a "living wage". I noted that I was able to not only live on what I could take home from working forty hours a week on minimum wage, but enjoy a few luxuries as well.
I'm not sure where the support of foreigners entered into the discussion -- certainly not in my comments. Regretfully, I am unable to devote the appropriate attention to that subject at present, except to note that your premise about God's reasons for creation seem to rest on unsound foundations. Perhaps at a later time you could expand on the basis for your unique theology.
"If they're illegal aliens, I on't care if their feelings are. The not-very-USA dones not more Mexicans permanently residing on this side of the border."
But If their illegal, then more likely then not (speaking from experience on the jobsite) they are not afected by any set living or minimum wage, and nor to they pay taxes at the level legals and citizens do. The illegals may be getting paidf less, but without having to deduct for SS, Medicare, or any other taxes, those 4-6 dollars an hour are going far further then a citizen would. And if you keep raising minimum wage, what is the incentive to hire citizens, when you can pay a illegal alien off the books less, have him be more productive, and have him have relatively more on hand cash then the would be legal co-worker?
Your only hurting the impoverished people who are playing by the rules Dave.
[ But If their illegal, then more likely then not (speaking from experience on the jobsite) they are not afected by any set living or minimum wage, and nor to they pay taxes at the level legals and citizens do. ... ]
K-rect. A lot of los illegales are working off the books and therefore not paying taxes.
[ ... The illegals may be getting paidf less, but without having to deduct for SS, Medicare, or any other taxes, those 4-6 dollars an hour are going far further then a citizen would. ]
But if illegal worker gets sick or injured, he or she is going to draw on the American taxpayer's purse for health care, SS disability payments, etc.
[ ... And if you keep raising minimum wage, what is the incentive to hire citizens, when you can pay a illegal alien off the books less,... ]
I.e., break the law whenever it is expedient to do so.
[.... have him be more productive,]
More productive? If cheap labor trumps mechanization, why did the Old South fall behind the North economically in the 19th Century?
[ ... and have him have relatively more on hand cash then the would be legal co-worker? ]
Why would this illegal worker have more cash on hand than a legal worker, if his employer is not evading employee-related taxes?
[ I in the past earned and lived for a time on minimum wage myself, and not just as a teenager. I avoided malnourishment, and managed to even enjoy a few luxuries,...]
Congratulations for your humility and thrift, virtues recognized by good Christians for two thousand years. But, if minimum wage laws did not exist in Anmerica, the minimum wage you earned might have been even more minimal. You might have starved in spite of your austerity, sans a min. wage set by law.
[... but on the other hand, I did not enjoy my standard of living, and moved to better paying opportunities as soon as I could.]
But would there be as many journeyman-level job opportunities which are better paying if legally mandated minimum wages weren't there to set a floor or standard or baseline? The existence of a minimum wage baseline probably does tend to push non-minimum wages up.
A good thing, sez I, because a modicum of income redistribution is both morally right and economically useful.
[ 3. I've done a poor job of explaining how efficiency wages work ... ]
Yes
[...and why you can't generalize to the whole economy....]
I agree. Some jobs aren't fit for humans to do even if machines can replace them. For example, fruit picking and other agricultural work. Paying efficiency wages make no sense in such a context.
Same goes for telemarketers and the nth+1 employee of a dingbat retail store. If the job's not worth doing, there's no point in the job paying better.
But can we Americans depend on free free free enterprise to create more good quality jobs for more Americanos? It doesn't seem to be happening that way.
I'll grant you that a national minimum wage is an idiocy. What works as a livable wage in Biloxi is below 100% of federal poverty guidelines in SF or NYC. However, to frame the issue as one of market mechanics, and ignore the social costs of families unable to make a living wage in those higher cost locales is disingenous at best.
The illegals may be getting paid less, but without having to deduct for SS, Medicare, or any other taxes
Employers commonly "withhold" government taxes as if they had been paying minimum wage. That way the IRS stays happy, and the employer doesn't go to federal prison.
The government gets suspicious if an agricultural or janitorial firm shows no listed employees, after all. It looks much better if the employer is "officially" paying his employees, say, $8/hr, with $2/hr taken out in taxes. Of course, in reality the employer is paying $1/hr, plus the $2 in taxes. But since the employer is happy, the employee is happy (happier than they'd be if they lost their job and got deported, anyway), and the feds are getting their money, there's no push for an investigation.
[More productive? If cheap labor trumps mechanization, why did the Old South fall behind the North economically in the 19th Century?]
Oh god, now Dave is asserting that native born Americans are actually robots. Them mexicans is stealing jobs from us native born robots! You capitalists will rue the day you tried to overcome our mechanical efficiency with cheap south-of-the-border labour!!!
That, or he's justy firing off non-sequitur cliches as fast as his tiny mind can conjure them.
"Henry Ford 1st's innovation in 1914 was indeed to pay HIGHER wages, instead of the LOWEST wage with which FoMoCo could get by."
Um, hardly. Ford's FIRST innovation was the assembly line which increased his workers' productivity by more than 800% -- slashing the time needed to make a car from 12 1/2 hours to 1 1/2 hours.
This enabled Henry's SECOND innovation, which was to slash the price of his cars by two-thirds, from $850 to $290, to undercut the competition and sweep up the market. In one short year he went from having just one of the 480 car companies in the US to 50% of all US car sales.
Those exploding sales obviously required him to hire many more workers -- so, a year *after* increasing his workers' productivity by 800%, he increased their wage by 113%, from $2.35 to $5.
He then used this wage rate as a *competitive weapon* -- as it was very profitable to him while his competitors couldn't afford it -- to cherry pick the best workers from his competitors, crippling them, while firing his own lesser workers. Of course that improved the quality of his work force. Duh.
The whole sequence was driven by greedy profit maximization and the huge competitive advantage of the assembly line. It ain't like Henry said to himself one day, "Hey, maybe if I just double the wages I pay I'll get better workers and make more money... " The urban legend. Ha! Giving your workers 1.13x more starting a year after increasing what they give you by more than 8x isn't *all that* generous.
Moreover, making Henry Ford out to be generous and compassionate to his workers as per the urban legend is near profane, I can say as a former member of the UAW (albeit briefly and a long time ago).
Henry Ford was the worst anti-labor union buster of the era. Remember the "Battle of the Overpass"? Remember Ford Motor Company's "Sociological Department" that investigated and monitored the lives of its workers? Not just their work records -- efficiency, attendance, attitude towards unions, etc. -- but *everything*: personal behavior, family relationships, how they spent their money, church attendance, the works. And which summarily purged from the work force those who didn't make the grade?
Yes, *of course* Henry got a better work force with that doing its job. Not just anybody could qualify for that $5 wage, or keep it.
Holding up Henry Ford of all people as the model of the notion: "If I just pay my workers more and am nicer to them they'll be more productive for me", will make many a union man of the 1930s spin in his grave. That's a pretty clean disconnect from reality there.
BTW, by the 1940s Ford had blown it all and was almost bankrupt, very largely as a result of Henry's extraordinary and violent war against labor.
Still there *is* a constructive lesson here: As greed-driven as Henry was, his greatly increasing his workers' productivity *did* lead him to follow up later by more than doubling their wages, for profit-maximizing purposes.
And when his productivity-increasing innovations spread through industry the workers of other firms received corresponding wage increases. Workers everywhere become much better off.
It's a classic example of the textbook principle that wages *follow* productivity. So if you want to increase wages, increase business productivity first. The more you do the more firms will be able to afford in the bidding for labor, and the
better off labor will be.
Henry Ford was more complex than that. He thought he was the "benevolent uncle" of his workers. Unfortunately, like all those types, he:
(a) was instead a meddlesome busybody - the social aspect, he stuck his nose into everyone's life. Drinking, not going to church, etc.
(b) reacted viciously to those who "didn't appreciate his help". Read "The Reckoning", a comparision of Ford vs. Nissan history through the decades. Ford was a self-opinionated wacko who wouldn't listen to anyone, and could afford not to.
CEO salaries have no relation to the real world because there is no feedback. If you set your automobile price or consulting rate too high, ta-da! No sale! If your collection of trained pets (board of directors) gives you too high a salary - where's the downside? Pay is small proportion of the company's overall cash flow (or the CEO WILL hear about it!) and companies typically do go into debt substantially in bad times, and any underperformance can be attributed to outside market conditions...
Minimum wage? Yes, there's been a shortage of workers the last few years; in times of shortage, wages like rents can peak at very high levels (like IT did?). Experience has shown (1800's, early 1900's) that when the government keeps its paws out of things, the average worker in times of relative balance gets the stick not the carrot.
When I was in high school( circa 1970), I earned spending money caddying. Most golf courses today offer no caddies, but plenty of golf carts. I suspect asembly workers at Cushman are paid well above the dollar-an-hour I earned. (True, there are less of them.) But even so, today there is a shortage of workers, so that trend hasn't resulted in hordes of unemployed.
[More productive? If cheap labor trumps mechanization, why did the Old South fall behind the North economically in the 19th Century?]
Because the north was industrializing while the south was sticking to agriculture - and with only one cash crop in most of the south. Nobody has got rich just by farming in the last 200 years, mechanization or not, slave labor or free. (Add in government subsidies and farming can be an adequately profitable way to wait until the land becomes worth millions, but if your only income is the sale of crops you'll be lucky to break even.)
I note with bemusement that our minimum wage law discussion has been hijacked by the-more-the-merrier immigration fanatics.
First mention of (illegal) immigration in this thread:
[...
True, the size of the American labor pool is not fixed. More and more desperately poor people from Mexico, Haiti, etc., illegally enter the USA every week, every day, and vie for minimum wage jobs.
...
Posted by David Davenport at September 20, 2003 04:58 PM]
Fifth post in the thread, no less. I don't see too many people making a "more the merrier" argument, certainly not to the point of "hijacking" the thread, so...if people found a point you first introduced into the discussion relevant enough to discuss it in the continuing context, try not to get snide, eh?
[...You won't get past the interview process at Wendy's without having the necessary personal serial numbers to sign a W-4, ... ]
Wrong on the facts. Some fast food places do hire illegales.
Sounds like a simple regulatory problem to me, but whatever it is, do you want to construct a defense showing that this is a significant problem for the legal work pool? Keep in mind this will require you to both show that (a) illegals have displaced legal positions overall, instead of creating a market for new positions at a sub-minimum-wage rate and that (b) the removal of illegals from those positions will not instead cause some businesses utilizing their services now to shut down, resulting in net job loss.
Incidentally, while I realize that partial quotations inevitably tend to divorce a statement from its context, try to at least make your alimony payments. I made that statement in full factual accuracy because I was clearly discussing the illegal immigrant situation in a limited region, and in said region the fast-food industry cannot get away with employing illegals (but the agricultural industry can).
[... but you can probably work in the fields for a couple months. ...]
That's what God created Mexicans for. Why not permanently assign these unfortunate persons to the oversight of a kindly master? In that case, they wouldn't have to migrat back and fort6h across the border to and from El Norte.
That doesn't sound like something I said. And I hope YOU aren't making that claim. What I did effectively say is that given the problem (illegals get into the country in spite of the border patrol and look for work), and given the outcome (temporary employment for those illegals leading to a net positive outcome for the local economy), I'm not disposed to complain about it.
Comments are Closed.