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PostPosted: Sat Aug 03, 2019 5:22 am    Post subject: Wages Reply with quote

Wages are more than the price of labor. They’re also inputs and income. A higher minimum wage will increase productivity. The higher wage will attract people to re-enter the workforce, create an incentive to improve work performance, build morale, reduce turnover, and increase capital spending. A higher minimum wage, in itself, will increase productivity growth, which has grown too slowly in low wage jobs.

The higher minimum wage will also increase demand, because lower wage workers have higher marginal propensities to consume. It will also reduce income inequality, including through a much higher rise in income than in prices for low wage workers, while high income workers lose only a little real income.

The minimum wage should be viewed as a labor standard and right now, that standard is too low. In 1968, the real minimum wage was $10 an hour, and since then, benefits have declined substantially. Yet, productivity has increased in low wage industries, although too slowly, over the past 50 years. The economy can absorb a $12 federal minimum wage in 2019 and higher minimum wages in areas where the cost of living is higher.

The decline in low wages is a result of a market failure. Many workers have little choice than being exploited. They should be paid a subsistence wage, to pay for housing, food, clothing, transportation, etc.. They should be able to afford to see a dentist, for example. The positive effects of the increase in demand and productivity will exceed the negative effects of fewer jobs or hours.

A $12 federal minimum wage is not high enough to where the economy won’t be able to absorb excess labor to maintain full employment in the long-run. In the short-run, there will be some loss in employment as weaker businesses fail or downsize and stronger businesses grow more strongly capturing their market share. If hours are cut, for example, workers are better off working two 20 hour a week jobs at $12 an hour than one 40 hour a week job at $8 an hour. A $12 federal minimum wage would be a net economic benefit.
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