Joined: 28 Dec 2005
|Posted: Sun Jun 06, 2010 8:37 am Post subject: Jobs-Understanding Minimum Wage IV-Double Dip-U.S. & E.U
|June 1, 2010
"[A drop to 8.2% in 2011] from the current 9.9% rate would require the creation of 323,000 jobs for each of the next 20 consecutive months, according to calculations from Nicholas Colas, chief market strategist at ConvergEx in New York."
A 41% increase in the median wage will certainly reduce employment substantially. However, a 41% increase in the minimum wage has an uncertain result on employment.
Few people work for the minimum wage, because few people are willing to work for the minimum wage. A higher wage will attract more and better people, and perhaps increase employment.
Characteristics of Minimum Wage Workers: 2008
"Among employed teenagers paid by the hour, about 11 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and over."
Also, when you hire better workers, you may get better production or service and more satisfied customers. You may increase revenue and profit.
If your reservation wage is $10, and you heard about a job for minimum wage, would you even apply? Of course not.
Also, if your salary is $100,000, and you know the value of your work is worth at least $200,000, however, because of corporate rules, you can only get a small raise, would you be happy? No.
How many people, including teenagers, aren't working because the pay is too low? I bet, it's quite a few. They're better off living with their parents or starting college.
Moreover, there are firms that lay off higher quality and higher paying workers and replace them with younger and lower quality workers just to save money, although the quality of their products take a nose dive.
Furthermore, a firm may be better off without some poor workers willing to work for rock bottom wages.
Perhaps, the minimum wage should increase until the (positive) wage effect equals the (negative) employment effect.
"The laws of supply and demand (like the law of gravity) are NOT optional."
One of the laws is "the higher the price, the higher the quantity supplied."
The minimum wage has little or no effect on employment, because:
1. A higher minimum wage will attract better workers.
2. Better workers will add greater value to the firm.
3. Greater value will make the firm more competitive.
4. A more competitive firm can increase its market share leading to more employment.
A higher wage, more competitive, higher quality market can increase in size.
I'm willing to bet Walmart paid a higher minimum wage than Kmart before Kmart declared bankruptcy.
Firms, industries, and markets are made up of people (from the highest paid to the lowest paid workers).
Ron H. said...
I understand most Wal-mart "associates" are pretty happy with the company, and feel fairly treated. Witness the continued failure of attempts at unionization.
It doesn't sound like federal minimum wage is at issue here.
Ron, who knows? Maybe there's a waiting list of hundreds or thousands of teenagers willing to work at Walmart for $9.50 an hour, who refuse to work at Kmart for $7.25 an hour.
Putting Kmart out of business (again) may increase teenage employment, because Walmart will take up the slack and expand revenues at a faster rate.
In recessions, the unemployment rate rises faster for teenagers than older workers.
Also, employers are more willing to hire older workers (e.g. the 55-64 age group, which is the second most productive group) than younger workers (e.g. the 16-24 age group, which is the least productive group) when employers know it'll be a slow recovery.
Unemployment Statistics on Older Americans by the Urban Institute shows in May 2010, the unemployment rate for men 55-64 was 7.7% and for women was 6.0%.
So, rather than a "job-killing impact," increases in the minimum wage may have a productivity-enhancing impact.
Mark J. Perry said...
If there's a productivity-enhancing impact of higher legislated minimum wages, then why stop at $7.25 per hour? Wouldn't $17.25 be even better? Or $72.50 per hour?
Dr Perry, if someone has a reservation wage of $10 [whether they're 18 or 58], there's no need to pay them more.
Perhaps, Congress should raise the minimum wage to $10. Afterall, it's raising the cost of almost everything else
Also, perhaps, if workers were paid a subsistence wage, there would be less need for government intervention.
There are many people who actually believe this is a strong recovery.
The most likely outcome is a slow U-shaped recovery that'll be completed in 2016 or 2017. However, I wouldn't rule out a double dip before then.
The European debt crisis, which caused lower U.S. interest rates and lower U.S. exports, is likely a net benefit for the U.S.
Also, another benefit of the E.U. crisis is a strengthening of the dollar as the world's reserve currency.
Carmen Reinhart, a University of Maryland economist with Harvard professor Kenneth Rogoff:
"When government debt-to-GDP rise above 90%, it lowers the future potential GDP of that country by more than 1%. It also locks in a slow-growth, high-unemployment economy."
"The U.S. government-debt-to-GDP ratio is 84%. Assuming GDP expands at a 3% per annum rate and the annual deficit remains at $1.4 trillion, both optimistic assumptions, the U.S debt-to-GDP ratio will pass the 90% threshold in 2011."
"Some countries might try to reduce their debt load through lower spending and higher taxes. This action will push them into a new recession. As one country tips to recession it will curtail spending that drags other countries down with it."
EU woes to weigh on global growth: Stiglitz
Jun 01, 2010
"Global economic growth will be "markedly lower" by the end of the year as European governments push through painful austerity measures, strangling the region's recovery, Nobel Prize winning economist Joseph Stiglitz said.
Stiglitz, winner of the 2001 Nobel Prize for Economics, said on Tuesday it was not yet clear whether the world was headed for a double-dip recession, but that one thing was certain: Europe is going to face a roller coaster ride for the "foreseeable future"."
Arthur Laffer is predicting a double dip in 2011 in the article "Tax Hikes and the 2011 Economic Collapse."
Perhaps, there will be a perfect storm in 2011 when the U.S. reaches the 90% threshold of government debt to GDP, which locks in countries into slow growth and high unemployment economies, while private debt remains high, taxes increase even more, and government stimulus winds down.
The U.S. has been unable to create a virtuous cycle of consumption-employment, where consumption increases employment, and employment increases consumption, etc.
I guess, that's what happens after two years of a Marxist President, a Pelosi House, and a 59 or 60 seat Democrat Senate.
Jobs Report Disappoints Economists
June 4, 2010
Scott Brown says the problem right now is this: The economy just isn't adding anywhere near enough jobs to absorb the millions of people who are still out of work (15 million so far).
Mr. BROWN: Coming out of a severe recession, we'd really like to see much stronger gains on the order of 250 to 300,000 jobs per month.
LANGFITT: Even at that pace, Brown says it would take at least six years before the unemployment rate could return to the good old days of five percent.
Mr. BROWN: So, there's a huge mountain to climb.
Prof. GRAHAM: We have a world economy that is just very uncertain right now between, you know, financial difficulties in Europe. And in the United States it's murky and difficult to tell how much of the growth is coming from long term authentic growth versus short term stimuluses and tax credits for buying houses and automobiles.
Mr. DARIN HOLDERNESS (Executive, Woodgrain Millwork): Our company has seen modest growth, but we're not sure there's a whole lot of reality to that growth.
LANGFITT: Darin Holderness is an executive with Woodgrain Millwork. The company is based in Idaho and makes doors, windows and molding for houses. Sales are up about 11 percent this year - but hiring isn't.
Mr. HOLDERNESS: We've not yet hired full time company employees...Our first choice to cover the extra volume is to just use our staff, more hours...it came apparent with the higher levels of volume that we did need to hire some outside people.
LANGFITT: But they were temps, not permanent staff. And later this year, Holderness expects he'll have to lay off many of them as well.
U.S. per capita income is over $10,000 a year more than E.U. per capita income, and that doesn't include the consumption side. For example, "the average American household has 92% more space (1,875 square feet) than the average European household (976.5 square feet)."
The U.S. leads the rest of the world combined in the Information and Biotech Revolutions (in both revenues and profits). Also, older U.S. industries offshored less profitable goods, e.g. to Asia, and shifted limited resources into higher quality "core" goods.
China is basically a U.S. factory that produces goods with declining prices, while the U.S. produces goods with rising prices. The U.S. is the only economy that can expand with huge negative net exports, while China needs the U.S. to maintain acceptable levels of employment.
The U.S. dollar is the most demanded currency in the world. Inflation causes all currencies to lose purchasing power. However, the U.S. imports deflation and exports inflation. The U.S. produces goods no other country can produce, and has huge market power.
"The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores."
~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996
Fish do swim upstream, particularly when they know there's a bigger reward.
There are mostly two types of economists:
1. Technocrats, who can explain the bark on the tree with great detail and precision, but can't comprehend the forest.
2. Economists who are so set in their ways that no matter how hard the wind blows to the south, they still have their ship and sails pointed north.
There are few Adam Smiths or Milton Friedmans in economics.