Another look at the minimum wage. (loans, capitalism, tier, expenses)

[ContrarianEcon]

Communist economics teaches that the value of dirt is free. That the value of anything made from that dirt is based on the value of the labor used to make the stuff. This is an over simplification that over stresses the value of labor and under stresses the value of money. (It is Communism not capitalism) But it does provide a different perspectiveon how to look at things. (China is way out performing us on year on year growth so looking at things the way they see them is not without merit)

The cost of labor across the entire economy is less than the total amount of economic output. It follows that an increase in the cost of labor will not cause an increase in prices in excess of the percent increase in labor cost unless there is already pressure for higher prices. If your direct labor cost is 20% of the sale price of your goods or services, then doubling your labor cost will require only an increase in prices of 20% to cover this. But if the cost of labor went up by increasing the amount of worker compensation your workers will have twice as much money to spend with only 20% higher prices.


If you push the cost of labor across the entire economy upby 200% using the minimum wage law then the workers would have a lot more money to spend.

The counter argument that upping the minimum wage will increase the dead weight loss in the economy doesn’t hold in the long term. A small increase in prices can cover a large increase in labor cost if the cost is higher wages. Inflation pushes the dead weight loss the other direction; it reduces the dead weight loss. This is what China knows that we don’t. This is why they are currently kicking our butts.

What we have had over the last 30 years is the opposite ofthis. Adjusted for inflation median wages have been constant as the top pulled away from the rest. In part the current economic hardships we face are a result of this.

[jaekn]

Maybe I'm not responding directly to your point, but I'm not totally sure what you are asserting.

The problem is that an increase in wages for the lowest-tier work creates an increase across the board. The immediate reaction to a huge increase in the responsibility to pay, as we have seen evidence of, is to cut costs (the workforce among other less significant expenses). Thus there are fewer people spending money actually and goods are more expensive, plus there are fewer jobs being created. There's a reason why low-paid work is low paid, its not meant to be a "career path" unless you really want to manage a fast food chain. They pay their managers a fair rate for this level as well.

Also, inflation in the way you describe is a dangerous thing to mess with in my opinion.

[NorthStarDelight]

The main issue with raising the minimum wage is that people would lose jobs if it's bumped up by any significant amount. There is a way to counter that, however. To compensate for the jobs lost, the federal government should implement large-scale public works projects to put the excess labor to work, which what we should be doing anyway. Put some extra taxes on those high-flying CEOs and put it toward the public works projects, which would also provided needed infrastructure that'd promote additional economic growth - a true win-win for everybody.

If our government was truly daring, they could push the min wage up to about $15 an hour (same as Australia), and put the "left-out" workers back on the job at an even higher wage - the economy would boom big time.

[GoCUBS1]

Originally Posted by NorthStarDelight

The main issue with raising the minimum wage is that people would lose jobs if it's bumped up by any significant amount. There is a way to counter that, however. To compensate for the jobs lost, the federal government should implement large-scale public works projects to put the excess labor to work, which what we should be doing anyway. Put some extra taxes on those high-flying CEOs and put it toward the public works projects, which would also provided needed infrastructure that'd promote additional economic growth - a true win-win for everybody.

And then the high-flying CEO's could use their connections (or payola) to bid strategically to win these same public works projects and then recoup their tax loses as profit sharing distribution. I like the way you think!

[MrRational]

Originally Posted by NorthStarDelight

...the federal government should implement large-scale public works projects
to put the excess labor to work, which what we should be doing anyway.

This is definitely in the theme of what's needed.
Something to keep the unemployable end of the unemployed occupied.

If our government was truly daring, they could push the min wage up to about $15 an hour...

Meh.

If those type of programs are done well and correctly that populations removal from the UE
statistics then market forces alone should be enough to push up starting wages just fine.
As now, those actually worth more will soon be getting it.

[Zot]

My take is slightly divergent from yours. Under communism people wait for bread, under capitalism bread waits for people.

[Cuero]

First of all, China is a capitalist country. When they abandoned communism that's when their economy took off. Secondly, China's economy is not outperforming the USA. When you start from a low base it's easy to have large growth rate. Thirdly, when you look at their per capita income and productivity per capita they are dirt poor. Their economy is big simply because they have the world's largest population.

[ContrarianEcon]

Originally Posted by jaekn

Maybe I'm not responding directly to your point, but I'm not totally sure what you are asserting.

Thank you for your effort.

Originally Posted by jaekn

The problem is that an increase in wages for the lowest-tierwork creates an increase across the board.

That is the point of what I want to do.

Originally Posted by jaekn

The immediate reaction to a huge increase in the responsibility to pay, as we have seen evidence of, is to cut costs (the work force among other less significant expenses).

That is the normal thing to do.

Originally Posted by jaekn

Thus there are fewer people spending money

True

Originally Posted by jaekn

actually and goods are more expensive,

True

Originally Posted by jaekn

plus there are fewer jobs being created.

Not true. We have had some unprecedented actions by the Fed, Zero percent prime and printing $1Trillion a year forseveral years. The result of this action has been stagnant growth in the economy. One thing upping the minimum wage far enough to push the cost of labor higher across the whole economy twice as high on a per hr. basis is it will create un-leveraged income. Then low interestrates will get a consumer spending spree. Now where is the spending?

Originally Posted by jaekn

There's a reason why low-paid work is low paid, its not meant to be a "career path" unlessyou really want to manage a fast food chain. They pay their managers a fairrate for this level as well.

The career path jobs are going overseas. So we need what is left to take up the slack. The Fed is trying to get small positive inflation. Before you can do this you need to reset the debt to income ratio of the economy. There are two ways to do this. Inflation driven by wages, and writing off as bad a lot of debt. Writing as bad fails the banks. Failed banks can’t lend money. You get massive unemployment. Inflation makes the bad loans less valuable. That means the banks won’t fail. That means an easy credit binge to jump start the economy.

Originally Posted by jaekn

Also, inflation in the way you describe is a dangerous thing to mess with in my opinion.

I don’t disagree with you. But the alternatives are worse.

Originally Posted by MrRational

This is definitely in the theme of what's needed. Something to keep the unemployable end of the unemployed occupied.

Originally Posted by MrRational

Meh.

If those type of programs are done well and correctly that populations removal from the UE statistics then market forces alone should be enough to push up starting wages just fine. As now,those actually worth more will soon be getting it.

The problem is the market has been manipulate by the Fed for a long time. The Fed targeted an unemployment rate high enough not to get upward pressure on wages but low enough to blow a long term asset bubble, and debt bubble. There are two ways to correct this. Inflate away the asset overvaluations and the excess debt or watch them correct downwards. Falling assets are very painful. But falling debt is called deflation and that is worse. Inflation saves the banks and the big ones have hedged against hyperinflation.

Originally Posted by Zot

My take isslightly divergent from yours. Under communism people wait for bread, undercapitalism bread waits for people.

Check that China is doubling their standardof living every ten years. The Best we did was every 30.

Originally Posted by Cuero

Firstof all, China is a capitalist country. When they abandoned communism that'swhen their economy took off. Secondly, China's economy is not outperforming theUSA. When you start from a low base it's easy to have large growth rate.Thirdly, when you look at their per capita income and productivity per capitathey are dirt poor. Their economy is big simply because they have the world'slargest population.

There are two populations in China those in the cities and those on the farms. The ones on the farms are getting left behind. China still has a planned economy.

[NJ Brazen_3133]

why must it be a guarantee that prices will rise? What happened to price competition? Isnt that suppose to be an inherent essential of Free Market Capitalism: competition?

[Zot]

Originally Posted by NJ Brazen_3133

why must it be a guarantee that prices will rise? What happened to price competition? Isnt that suppose to be an inherent essential of Free Market Capitalism: competition?

Inflation and deflation are largely the result of monetary policy. In the U.S. and most of the western world, central banks decide monetary policy. Deflation is perceived by most central banks as bad, and thus is avoided. There is no unrestricted free market country in the world, most countries have a government controlled or influenced central bank or banks.