GOP Oppose Minimum Wage Increase.
Dick Eastman
>> "Citizens For Tax Justice", a liberal research group, estimates that
>> nearly 90% of the tax benefits would go to the wealthiest 5% of
>> taxpayers.
The above is the only good point in your post.
The minimum wage is sweet poison--especially when
one considers their effects in a model that includes
foreign trade and capital exportation (to China
for example). Sweet poison to destroy the middle
class and fatten the rich--just the oposite of
what you claim.
I say this as a man who received a pay increase
with the last MWR hike (I work at the local Blockbuster).
But also consider this:
Akira Takayama and John Drabicki in 1980 wrote a
an paper (not to my knowledge published) called
Minimum Wage Regulation and Economic Growth.
The using the neoclassical aggregate growth model
approach of Solow and Swan Takayama and Drabicki
showed that minimimum wage regulations, if effective,
ALWAYS lowers the rate of growth, and that the minimum
wage floor, if it is sufficiently high, causes the
economy to decay "all the way to the origin."
Under the neoclassical assumptions of the model, if
the minimum wage rate is sufficiently high then the
economy decays in the sense that the capital-labor
endowment ratio, per capital output, and per capital
consumption all decrease exponentially over time.
Only if the marginal productivity of capital
implied by the minimum wage rate is sufficiently
high will the economy not decay.
If the minimum wage rate is "effective" (i.e., higher
than the equilibrium wage rate) it will fix the
marginal productivity of labor (and hence also of
capital). An increase in the minimum wage rate
from one fixed level to another thus causes the
substitution of capital for labor by making labor
relatively more expensive compared to capital.
The resulting increase in capital intensity will
then lower the marginal productivity of labor
by making labor relatively more expensive compared
to capital. The resulting increase in the capital
intensity will then lower the marginal productivity
of capital. If it is lowered sufficiently, the
reporduction of capital would not be high enough
to kee[ up with population growth, which in turn
causes a fall in the capital-labor endowment ratio
(and hence also a fall in per capita output and
consumption over time.)
How does this differ from econ 101 supply and
demand treatments?
"In such a partial equilibrium study the labor
demand curve is (correctly) represented by the
marginal productivity of labor. But the fact
that such a curve will shift when the volume
of capital changes is often ignored. The
effective minimum wage floor will make labor
relatively more expensive compared to capital,
causing the substitution of capital for labor.
The marginal productivity of labor curve then
shifts. The investigation of the employment
effect of minimum wage laws should properly
take account of such shifts in the labor
demand curve, i.e., of the substitution of
other factors for labor."
Dick Eastman
Yakima
U.S.A.
whitepilot
What you failed to mention is that a minimum wage job is a hell of a
lot better than NO job, which is exactly what happens when the minimum
wage is raised. When employers who have minimum wage employees suddenly
find labor more expensive, they are usually forced to raise the price
of their product and/or cut their workforce. Either way, everyone loses.
Of course, Ted Kennedy knows this, but since it SOUNDS so good, and
people will think that he CARES so much, he'll push for it anyway, and
continue in his efforts to divide this country along class lines.
Everybody loses.
* Sent from RemarQ http://www.remarq.com The Internet's Discussion Network *
The fastest and easiest way to search and participate in Usenet - Free!
Robert Vienneau
> What you failed to mention is that a minimum wage job is a hell of a
> lot better than NO job, which is exactly what happens when the minimum
> wage is raised. When employers who have minimum wage employees suddenly
> find labor more expensive, they are usually forced to raise the price
> of their product and/or cut their workforce. Either way, everyone loses.
Empirical data does not support that claim. Neither does an analysis of
the logical implications of maximizing behavior. To help you understand
this logic, I' ve worked through the following numerical example:
1.0 INTRODUCTION
This long post presents an example in which higher wages for
unskilled labor are associated with firms choosing to employ more
unskilled workers per unit output produced. The exact numeric values
used are obviously unreasonable. The example, howevever, is used to
raise questions about the logical implications of maximizing
behavior.
Some further points might help clarify the questions. The example
illustrates behavior that is possible under some maximizing frameworks.
Those who accept one of these frameworks, but reject the possibility
of this behavior occuring in existing economies must accept the
existence of additional special case assumptions. Those adopting this
position should clearly state their assumptions, ad hoc as they may be.
They might also try to give some rationale for why one should be
interested in this special case. If one does not accept any maximizing
model that could produce the illustrated behavior in the general case,
but does accept the use of mathematical models of maximization in
economics, one should outline an alternative model. The models in
which I am especially interested, although not exclusively so, are
those of steady state or long run prices. In a long run position,
the need for specific quantities of capital goods will have been
foreseen and the structure of capital goods will have been adapted to
production. I question whether equilibria of this sort can be explained
by the intersections of long run supply and demand curves. Some
economists have raised this question.
2.0 DATA ON TECHNOLOGY
Consider a very simple economy that produces a single consumption
good, corn, from inputs of skilled and unskilled labor, steel, and
(seed) corn. All production processes in this example require a year to
complete. Two production processes are known for producing steel. These
processes require the inputs shown in Table 1 to be available at the
start of the year for each ton steel produced and available at the
end of the year.
TABLE 1: INPUTS REQUIRED PER TON STEEL PRODUCED
Process A Process B
Steel 0 Tons (3/10) Ton
Corn (71/100) Bushel (1/50) Bushel
Skilled Labor (1/100) Person-Year (33/50) Person-Year
Unskilled Labor 1 Person-Year (6/5) Person-Year
Two processes, as shown in Table 2, are also known for producing
corn.
TABLE 2: INPUTS REQUIRED PER BUSHEL CORN PRODUCED
Process C Process D
Steel (1/10) Ton (1/5) Ton
Corn 0 Bushels (1/10) Bushel
Skilled Labor 1 Person-Year (7/10) Person-Year
Unskilled Labor 1 Person-Year (4/5) Person-Year
A technique consists of a process for producing the consumption good,
corn and a process for producing each non-consumption reproducable good
used as an input in the process for producing the consumption good. In
other words, a technique is a combination of one steel-producing
process and one corn-producing process. The number of techniques is the
product of the number of corn-producing processes and the number of
steel-producing processes. Thus, there are four techniques in this
example. They are defined in Table 3.
TABLE 3: TECHNIQUES AND PROCESSES
Technique Processes
Alpha A, D
Beta A, C
Gamma B, C
Delta B, D
3.0 QUANTITY FLOWS
The example is constructed by comparing constant prices associated
with stationary states for producing the net output of a bushel corn.
Four stationary states are possible, or linear combinations of these.
Each of the pure stationary states corresponds to a choice of one
of the techniques. Table 4 shows the quantity flows for a stationary
state in which the alpha technique is used. The quantity flows for
the stationary states in which the other techniques are used are
shown in the appendix.
TABLE 4: QUANTITY FLOWS FOR THE ALPHA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (1/379) Person-Year (350/379) Person-Year
Unskilled Labor (100/379) Person-Year (400/379) Person-Year
Steel 0 Tons (100/379) Ton
Corn (71/379) Bushel (50/379) Bushel
OUTPUTS (100/379) Ton Steel (500/379) Bushel Corn
The amount of any input required per bushel corn produced net is
merely the sum across the columns in the tables showing stationary
state quantity flows. Table 5 shows the unskilled labor intensity
for each technique.
TABLE 5: UNSKILLED LABOR INTENSITY
TECHNIQUE INTENSITY
Alpha (500/379) Unskilled Person Years per Bushel
Beta (1100/929) Unskilled Person Years per Bushel
Gamma (410/349) Unskilled Person Years per Bushel
Delta (400/313) Unskilled Person Years per Bushel
4.0 PRICES
The argument proceeds by determining which technique is
cost-minimizing at equilibrium prices. In this context, equilibria
have the following properties:
o At least one corn-producing process is operated, and at least one
of the steel-producing processes is operated.
o The cost of inputs for each process in operation does not exceed
revenues.
o No process can be used to obtain pure economic profits.
I assume that steel and corn inputs are paid for at the beginning
of the year. Labor, although hired at the beginning of the year,
is paid out of the product at the end of the year.
Given these conditions, Equations 1 and 2 must be satisfied if
the Alpha technique is chosen:
(71/100)( 1 + r ) + (1/100) w1 + w2 = p (1)
[ (1/5) p + (1/10) ]( 1 + r ) + (7/10) w1 + (4/5) w2 = 1 (2)
where corn is the numeraire, p is the price of steel, w1 is the wage of
skilled labor, w2 is the wage of unskilled labor, and r is the rate of
profits (sometimes called the interest rate). This is a system of two
equations with four unknowns. Thus, there are two degrees of freedom.
This system can be solved for the wage of skilled labor and the price
of steel in terms of a given rate of profits and the wage of unskilled
labor. Equations 3 and 4 show this solution:
w1 = [ 379 - 192 r - 71 r r - (500 + r) w2 ]/(351 + r) (3)
p = ( 253 + 248 r + 346 w2 )/(351 + r) (4)
Equation 3 is the factor price surface for the Alpha technique. This is
a two-dimensional surface in a three-dimensional space.
Corresponding price systems for the Beta, Gamma, and Delta techniques
are relegated to the appendix.
5.0 CHOICE OF TECHNIQUE
It remains to be shown which technique is cost minimizing. I consider
two values of the exogeneously specified rate of profits, 0% and 150%.
5.1 CASE 1: r = 0%.
Figure 1 shows the factor price curves for three techniques when
the rate of profits is zero. (The curve for delta is never on
the frontier and is not shown.) The cost-minimizing technique, at
a given rate of profits and a given wage of unskilled labor will
maximize the wage of skilled labor. Thus, the cost-minimizing
technique at a zero rate of profits is the frontier constructed
as the outer envelope of the three lines shown. Notice that the curves
for alpha, beta, and gamma are straight lines. This is an implication
of the mathematics in general. There cannot be reswitching at a given
rate of profits between skilled and unskilled labor.
S |
k 379/351+
i | . alpha
l 929/1001+ ./
Wl | . .
ae | . .
gd 349/383+ . .
e | . . .
L 119/286+ . x
oa | . ..
fb | . .. beta
o | .. ./
r 301/1089+ . x
| . . . gamma
( | . . ./
w | . . .
1 +--------------------+--------------+--------x------x--------x
) 41/88 3229/5445 929/1100
379/500 349/410
Wage of Unskilled Labor (w2)
FIGURE 1: FACTOR PRICE FRONTIER (NOT TO SCALE)
Since the technique and prices have been determined at a zero rate of
profits, for any given wage of unskilled labor, one can graph the labor
intensity for unskilled labor against either the wage of unskilled
labor or relative wages along the factor price frontier. Figure 2
shows the latter. Notice that higher wages of unskilled labor are
associated with a step-decrease in the unskilled labor intensity of the
cost-minimizing technique. This case conforms to the intutition of the
traditional story.
|
500/379+-------+
Labor | |
Intensity | |
| |
(Unskilled 1100/929+ +-----------------+
Person- | |
Years | |
per 410/349+ +------->
Bushel) |
|
|
|
|
+-------+-----------------+---------
5863/5236 3229/1505
Ratio of Wages of Unskilled and Skilled Labor
FIGURE 2: UNSKILLED LAOR INTENSITY VS. RELATIVE WAGES (NOT TO SCALE)
5.2 CASE 2: r = 150%
Figure 2 shows the factor price curves when the rate of profits
is 150%. Only the Gamma and Beta techniques appear on the frontier in
this case; the Alpha and Delta techniques are dominated.
S |
k |
i |
l 95/166+ Gamma
Wl | ./
ae | .
gd 445/802+ .
e | . .
L | . .
oa | . .
fb | . .
o 5/18+ ..
r | . . Beta
| . ./
( | . .
w | . .
1 +------------------------------+-------------------x----------x
) 2/9 19/44 89/200
Wage of Unskilled Labor (w2)
FIGURE 3: ANOTHER FACTOR PRICE FRONTIER (NOT TO SCALE)
Figure 4 shows the intensity of unskilled labor for the chosen
technique graphed against relative wages. In this case, a higher
wage for unskilled labor can be associated with a choice of technique
in which vertically integrated firms want to hire more unskilled
workers per unit output.
|
|
Labor |
Intensity |
|
(Unskilled 1100/929+ +---------------->
Person- | |
Years | |
per 410/349+----------------+
Bushel) |
|
|
|
|
+----------------+------------------
4/5
Ratio of Wages of Unskilled and Skilled Labor
FIGURE 4: UNSKILLED LAOR INTENSITY VS. RELATIVE WAGES (NOT TO SCALE)
6.0 CONCLUSIONS
This example clearly shows that it is possible for a technique that
uses an input more intensively to be adopted by cost-minimizing firms
when the price of that input is higher. In the case illustrated by
Figure 4, vertically integrated firms desire to hire more unskilled
workers, per bushel corn produced net, at a higher wage for unskilled
labor. This is a matter of logic.
Those who do not think that this possibility ever occurs in
the real world have failed to face a challenge for decades now.
What are the special case assumptions adopted so as to rule out the
possibility illustrated in the example? Furthermore, why should
a special-case model be preferred to the more general model? The
general model for analyzing the choice of technique does not imply
a less-labor intensive technique will be adopted at a higher wage.
From long experience, I know that some are likely to make logical
mistakes at this point. So I'll conclude with a few observations. The
effect illustrated in the example can arise when there are many more
processes to choose from. It can arise in models with more than two
goods being produced. I don't think it depends on the existence of a
produced good that is used either directly or indirectly in the
production of all goods. (Both steel and corn have this property in
the example.) It can arise if there are non-produced commodities used
in production ("land") and capital-goods that last more than one
production cycle ("fixed capital" or "machinery"). I gather that
numeric examples with reasonable values are easier to construct, in
some sense, if there are more produced goods. At least, more degrees
of freedom arise.
Consequently, incorrect answers to my question are assumptions
that more goods are produced, more techniques are available, etc.
These assumptions are simply insufficient to imply the conclusion
that higher wages of a specific type are associated with a choice of
a technique using that type of labor less intensively.
The final questions posed by this example are a matter of the
sociology of knowledge. Similar examples have been available
in the literature for over three decades. Many economists,
including specialists in labor economics, seem to be unaware of
this possibility. Why do so many economists have logically
mistaken beliefs about their subject? Why do they continue to
teach irrelevant dogma?
REFERENCES
Heinz D. Kurz and Neri Salvadori, _Theory of Production: A
Long-Period Analysis_, Cambridge University Press, 1995
J. S. MetCalfe and Ian Steedman, "Reswitching and Primary Input Use,"
_Economic Journal_, 1972
APPENDIX
This appendix contains some supplementary tables and calculations for
anybody who wants to check my work.
A.1 QUANTITY FLOWS
TABLE A-1: QUANTITY FLOWS FOR THE BETA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (1/929) Person-Year (1000/929) Person-Year
Unskilled Labor (100/929) Person-Year (1000/929) Person-Year
Steel 0 Tons (100/929) Ton
Corn (71/929) Bushel 0 Bushels
OUTPUTS (100/929) Ton Steel (1000/929) Bushel Corn
TABLE A-2: QUANTITY FLOWS FOR THE GAMMA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (33/349) Person-Year (350/349) Person-Years
Unskilled Labor (60/349) Person-Year (350/349) Person-Years
Steel (15/349) Ton (35/349) Ton
Corn (1/349) Bushel 0 Bushels
OUTPUTS (50/349) Ton Steel (350/349) Bushel Corn
TABLE A-3: QUANTITY FLOWS FOR THE DELTA TECHNIQUE
INPUTS STEEL INDUSTRY CORN INDUSTRY
Skilled Labor (66/313) Person-Year (245/313) Person-Years
Unskilled Labor (120/313) Person-Year (280/313) Person-Years
Steel (30/313) Ton (70/313) Ton
Corn (2/313) Bushel (35/313) Bushel
OUTPUTS (100/313) Ton Steel (350/313) Bushel Corn
A.2 PRICE EQUATIONS
A.2.1 BETA PRICES
The Beta price system is:
(71/100)( 1 + r ) + (1/100) w1 + w2 = p (A-1)
(1/10) p ( 1 + r ) + w1 + w2 = 1 (A-2)
The solution is:
w1 = [ 9929 - 142 r - 71 r r - (1100 + 100 r) w2 ]/( 1001 + r ) (A-3)
p = ( 720 + 710 r + 990 w2 )/( 1001 + r ) (A-4)
A.2.2 GAMMA PRICES
The Gamma price system is:
[ (3/10) p + (1/50) ]( 1 + r ) + (33/50) w1 + (6/5) w2 = p (A-5)
(1/10) p ( 1 + r ) + w1 + w2 = 1 (A-6)
The solution is:
w1 = [ 349 - 152 r - r r - (410 - 90 r) w2 ]/( 383 - 117 r ) (A-7)
p = ( 340 + 10 r + 270 w2 )/( 383 - 117 r ) (A-8)
A.2.3 DELTA PRICES
The Delta price system is:
[ (3/10) p + (1/50) ]( 1 + r ) + (33/50) w1 + (6/5) w2 = p (A-9)
[ (1/5) p + (1/10) ]( 1 + r ) + (7/10) w1 + (4/5) w2 = 1 (A-10)
The solution is:
w1 = ( 313 - 174 r + 13 r r - 400 w2 )/( 311 - 39 r ) (A-11)
p = ( 304 - 26 r + 156 w2 )/( 311 - 39 r ) (A-12)
--
r a Whether strength of body or of mind, or wisdom,
v c p or virtue, are found in proportion to the
i s e power or wealth of a man is a question fit
e . . perhaps to be discussed by slaves in the
n m c hearing of their masters, but highly unbecoming
@ a o to reasonable and free men in search of the
d e m truth.
r -- Rousseau
David Lloyd-Jones
"whitepilot" <jaybird...@mosquitonet.com.invalid> wrote
> What you failed to mention is that a minimum wage job is a hell of a
> lot better than NO job, which is exactly what happens when the minimum
> wage is raised. When employers who have minimum wage employees suddenly
> find labor more expensive, they are usually forced to raise the price
> of their product and/or cut their workforce. Either way, everyone loses.
It would be nice if you supplied some empirical evidence in support of this
intuitively attractive, but totally unsupported, piece of rant.
It sounds good, but it ain't so. Factually, a raise in the minimum wage is a
direct transfer of income from hirers to workers, and it gets passed on up
the line to the people who own lawns, eat hamburgers, need their floors
washed. Sorry 'bout dat.
-dlj.
jim blair
>
> > What you failed to mention is that a minimum wage job is a hell of a
> > lot better than NO job, which is exactly what happens when the minimum
> > wage is raised. When employers who have minimum wage employees suddenly
> > find labor more expensive, they are usually forced to raise the price
> > of their product and/or cut their workforce. Either way, everyone loses.
David Lloyd-Jones wrote:
> It would be nice if you supplied some empirical evidence in support of this
> intuitively attractive, but totally unsupported, piece of rant.
>
> It sounds good, but it ain't so. Factually, a raise in the minimum wage is a
> direct transfer of income from hirers to workers, and it gets passed on up
> the line to the people who own lawns, eat hamburgers, need their floors
> washed. Sorry 'bout dat.
Hi,
Notice that "whitepilot" listed raising prices as an option. When the minimum
wage is raised to well above the market wage for unskilled labor (as happened
back in the 1950's and 60's) there were shifts in employment away from
'protected' jobs to generally lower paid 'unprotected' jobs.
Recent mw increases haven't had much impact since they raised the wage to below
the market rate.
As for getting the floors washed, domestic help is not covered by minimum wage,
and neither is having a kid in the neighbourhood cut your lawn.
As for effectiveness, most mw workers are not poor, as Robert Reich pointed out.
So why not expand the EITC if the goal is to 'help the working poor'??
Because then the cost would be known?
--
,,,,,,,
_______________ooo___(_O O_)___ooo_______________
(_)
jim blair (jeb...@facstaff.wisc.edu) For a good time call
http://www.geocities.com/capitolhill/4834
David Lloyd-Jones
"jim blair" <jeb...@facstaff.wisc.edu>
> Notice that "whitepilot" listed raising prices as an option.
The price you can get for your output has nothing to do with the cost of
your inputs. Duh.
> When the minimum
> wage is raised to well above the market wage for unskilled labor (as
happened
> back in the 1950's and 60's) there were shifts in employment away from
> 'protected' jobs to generally lower paid 'unprotected' jobs.
You are reaching back forty years to find mythological stuff to throw at me.
Jim, I am talking about here and now.
> Recent mw increases haven't had much impact since they raised the wage to
below
> the market rate.
Of course. I couldn't have put it better myself. There is one important
smallpoint: when I guy gets somebody to mow the lawn he assumes the price is
the minimum wage, whatever it is. If we jack it up two bucks, we're sticking
more money in the pockets of all those kids saving for college.
> As for getting the floors washed, domestic help is not covered by minimum
wage,
> and neither is having a kid in the neighbourhood cut your lawn.
I'm astonished to learn this, and irritated at my own ignorance. The next
time I get back into a position of power we shall change this.
> As for effectiveness, most mw workers are not poor, as Robert Reich
pointed out.
> So why not expand the EITC if the goal is to 'help the working poor'??
> Because then the cost would be known?
Jim, you are talking at one of the major architects, ambassadors and
advocates of income tax credits. Of course I support more, now, retroactive,
vested, and delivered-by-messenger tax credits to the working and not
working, poor. I'm not a big Robert Reich fan, because it seems to me he
whines a lot. Still, his view of working class life is not far off base.
-dlj.
Dave H
Dave H
plaw...@arcbs.redcross.org.au
"David Lloyd-Jones" <ico...@netcom.ca> wrote:
>
> "jim blair" <jeb...@facstaff.wisc.edu>
>
> > Notice that "whitepilot" listed raising prices as an option.
>
> The price you can get for your output has nothing to do with the cost
of
> your inputs. Duh.
Strictly speaking, there doesn't have to be a connection. But that's
just a way of highlighting an important assumption that should be
queried: with minimum wages, does that flow around and influence
price levels? Myself, I doubt if there is a significant connection,
but we can't rule it out absolutely. It's rather cavalier to dismiss
the possibility out of hand.
>
> > When the minimum
> > wage is raised to well above the market wage for unskilled labor (as
> happened
> > back in the 1950's and 60's) there were shifts in employment away
from
> > 'protected' jobs to generally lower paid 'unprotected' jobs.
>
> You are reaching back forty years to find mythological stuff to throw
at me.
> Jim, I am talking about here and now.
Again, I don't think you're coming from the right direction. You
shouldn't be taking the past as a model for the present, but - here
in this talk shop, for purposes of analysis - it is constructive to
look at those academic things, just to broaden our perspective and
develop the things we are going to test empirically. PML.
Sent via Deja.com http://www.deja.com/
Before you buy.
David Lloyd-Jones
<plaw...@arcbs.redcross.org.au> wrote >
> Strictly speaking,
"Strictly speaking" is up there on my list, along with "frankly," "to tell
you the truth," and a few others. It means here comes a lie. BOSU.
>there doesn't have to be a connection. But that's
> just a way of highlighting an important assumption that should be
> queried: with minimum wages, does that flow around and influence
> price levels? Myself, I doubt if there is a significant connection,
> but we can't rule it out absolutely. It's rather cavalier to dismiss
> the possibility out of hand.
Yap yap. All I was asking for were empirical findings.
<Much blather snipped>
-dlj.
Peter Lawrence
>
> <plaw...@arcbs.redcross.org.au> wrote >
> > Strictly speaking,
>
> "Strictly speaking" is up there on my list, along with "frankly," "to tell
> you the truth," and a few others. It means here comes a lie. BOSU.
You, sir, are not only offensive, you are wrong. On this occasion it means
"here comes an attempt to break something gently". You want it in the teeth,
right, here it comes that way.
>
> >there doesn't have to be a connection. But that's
> > just a way of highlighting an important assumption that should be
> > queried: with minimum wages, does that flow around and influence
> > price levels? Myself, I doubt if there is a significant connection,
> > but we can't rule it out absolutely. It's rather cavalier to dismiss
> > the possibility out of hand.
>
> Yap yap. All I was asking for were empirical findings.
>
> <Much blather snipped>
This may come as a shock to you. Not everybody's here looking for empirical
stuff without structure. If that's all you're willing to accept, you'll never
get to design the experiments, so to speak - you'll just collect
the seashells that just happen to be lying around, with no chance of
spotting a pattern.
Damn. I was still more tactful than you deserve.
BTW, I also asked a question. Did you notice it? PML.
--
GST+NPT=JOBS
I.e., a Goods and Services Tax (or almost any other broad based production
tax), with a Negative Payroll Tax, promotes employment.
See http://users.netlink.com.au/~peterl/publicns.html#AFRLET2 and the other
items on that page for some reasons why.
mason clark
posted to sci.econ only:
Peter,
I'm interested in what you have to say. Would you be so
kind as to spell it out in a simple way that even I can
understand? Perhaps a numbered list of your points.
Mason C
jim blair
> The price you can get for your output has nothing to do with the cost of
> your inputs. Duh.
Hi,
Think that companies can sell their product for less than the cost of making it?
And make a profit on volume? So we lose a dollar on every sale: we make it up by
volume?
> > When the minimum
> > wage is raised to well above the market wage for unskilled labor (as
> happened
> > back in the 1950's and 60's) there were shifts in employment away from
> > 'protected' jobs to generally lower paid 'unprotected' jobs.
>
> You are reaching back forty years to find mythological stuff to throw at me.
> Jim, I am talking about here and now.
You think studies done in the past have no connection to basic principles?
Sure Michaelson-Morley demonstrated that the speed of light is the same in all
directions. But that was in the late 1900's, no reason to think it true today.
Momentum is conserved? That was last year.
> Recent mw increases haven't had much impact since they raised the wage to
>below the market rate.
> Of course. I couldn't have put it better myself. There is one important
> smallpoint: when I guy gets somebody to mow the lawn he assumes the price is
> the minimum wage, whatever it is. If we jack it up two bucks, we're sticking
> more money in the pockets of all those kids saving for college.
But what if we decide to buy a riding power mower instead, since it costs less
relative to the cost of paying someone to mow?
> > As for getting the floors washed, domestic help is not covered by minimum
> wage,
> > and neither is having a kid in the neighbourhood cut your lawn.
>
> I'm astonished to learn this, and irritated at my own ignorance. The next
> time I get back into a position of power we shall change this.
>
> > As for effectiveness, most mw workers are not poor, as Robert Reich
> pointed out.
> > So why not expand the EITC if the goal is to 'help the working poor'??
> > Because then the cost would be known?
>
> Jim, you are talking at one of the major architects, ambassadors and
> advocates of income tax credits. Of course I support more, now, retroactive,
> vested, and delivered-by-messenger tax credits to the working and not
> working, poor. I'm not a big Robert Reich fan, because it seems to me he
> whines a lot. Still, his view of working class life is not far off base.
Recall the Bush minimum wage increase. He vetoed the first, and Congress was
determined to pass SOMETHING. An increase and extension of EITC was being
debated. But then Bush signed the second mw increase, so all talk of really
dealing with the issue of helping the working poor was forgotten.
Minimum wage is a politically popular substitute for EITC: popular because EITC
costs money and the cost can be seen in the budget. By raising the mw, the
politician can claim to have given millions of people a raise, and it didn't
cost anyone anything.
Hard to beat that for politicaly popular.
jdba...@my-deja.com
Is what you are trying to say that if wages are increased, the price of
goods will have to be increased accordingly? Doesn't that mean that we
all pay for it in the end and then we are right back where we started
at?
Mike Coburn
> David Lloyd-Jones wrote:
>
> > The price you can get for your output has nothing to do with the cost of
> > your inputs. Duh.
>
> Hi,
>
> Think that companies can sell their product for less than the cost of making it?
> And make a profit on volume? So we lose a dollar on every sale: we make it up by
> volume?
In a FREE MARKET any company with operating costs higher than what they can get
from sales will simply cease to exist. Therefore the company you are using for an
example cannot exist and is a figment of your imagination.
Prices are set to maximize profits. It is determined by the producer that a
certain price will maximize his profit. That is the profit per unit times the
number of units. Increasing the price will decrease the number of units sold and
decreasing the price will increase the number of units sold. The selected price
has NOTHING to do with the cost of inputs.
C.L.C. Maillette De Buy Wenniger
whitepilot wrote:
if i may be so bold to ask, why do you call yourself whitepilot ?
> Finally we have somenone who is using a rational argument.
>
> What you failed to mention is that a minimum wage job is a hell of a
> lot better than NO job, which is exactly what happens when the minimum
> wage is raised. When employers who have minimum wage employees suddenly
> find labor more expensive, they are usually forced to raise the price
> of their product and/or cut their workforce. Either way, everyone loses.
>
Velcro SPY
<jeb...@facstaff.wisc.edu> wrote:
>Minimum wage is a politically popular substitute for EITC: popular because EITC
>costs money and the cost can be seen in the budget. By raising the mw, the
>politician can claim to have given millions of people a raise, and it didn't
>cost anyone anything.
That is an interesting point! Both policies (minimum wage & EITC) aim
to bolster the lots of the lowest wage earners. If bolstering the lots
of the lowest wage earners is a desired goal, then what method does
the science of Economics favor?
I think the purer economic solution would be the EITC! Its effects are
clearly measurable. Its assistance to the poor is directly
quantifiable.
VS
Velcro SPY
<michael....@gte.net> wrote:
>number of units. Increasing the price will decrease the number of units sold and
>decreasing the price will increase the number of units sold. The selected price
Just to quibble a bit: if demand is totally inflexible # of units sold
stays the same no matter the price.
I also wanted to state that US Presidential candidate John McCain
opposes a minimum wage increase.
Coming soon to a Reform party ticket near you...
Incremental increases in the minimum wage have not been shown to
adversely affect the economy.
VS
plaw...@arcbs.redcross.org.au
Fair enough.
(1) Minimum wage - price link?
(1a) Other things being equal, prices have nothing to do with
minimum wages, and minimum wages can't be covered simply by raising
prices.
(1b) But they aren't equal - minimum wages do affect people's
discretionary spending.
(1c) Opinion is divided just what happens. Without going into whys
and wherefores, some feel just as many would be employed and get more,
while others feel fewer would be employed and would receive the same
(though these would be paid above the minimum).
(1d) Suppose for a moment that discretionary spending went up; then
there would be more demand (I think DLJ noticed this).
(1e) Then there would be scope for lifting the prices to help cover
the increased minimum wages.
(1f) But we don't know (1d), and we also don't know how much prices
could go up or how soon. So the prudent first approximation would
be to ignore the possibility that prices could rise enough to
cover everything.
(1g) We equally don't know for sure that prices couldn't be increased
AT ALL, so it's going too far to say there is absolutely no link.
At this stage we just don't have the evidence.
(2) Empirical-only approach to economics.
(2a) Traditional science is experimental, and to qualify as a real
science you need an analogue of the experimental method. That's
why mathematics is an art.
(2b) I'd say an art uses unrepeatable insight to increase knowledge,
and a craft is an unstructured collection of free standing pieces of
applicable knowledge. It's all the more robust for not being
interdependent, but it also lacks predictive power.
(2c) I'd say economics proper was a craft, turbocharged and given
some predictive power by being linked to the art of mathematics.
(2d) Gallant efforts have been made to apply experimental analogues
to economics, with some success, so it manages to transcend (2c).
(2e) As with experiments, they need to be designed to look for new
things without being disturbed by outside influences - noise.
Econometrics and allied stuff lets us break down empirical data that
didn't happen in controlled experimental environments. Thought
experiments and tautologous definitions, like new notations, let us
rearrange existing information and get new insights that help us
design these experimental analogues. They can also expose internal
contradictions and so highlight areas where we have gone astray
without realising it, that need to be gone over again. This is
often "fruitful error". (All this without any new data, just from
working the tailings.)
(2f) Throughout we are aiming for a body of knowledge that is less
cumbersome than a mere collection, with enough principle and theory
that we can get useful predictive power.
(2h) So it is "useful" to look at academic and/or historical stuff,
to work towards the above intermediate and end objectives, even though
they are of no direct and immediate use. As someone once said, nothing
is as useful as a good theory.
(2i) But if we only take the data as it turns up, not only will we
end up with a craft short on insight and predictive power, we will
end up loaded down with useless trivia as well as useful stuff. We
haven't developed an approach to abstract, to leave out the
inessential obscuring stuff, and our craft hasn't been thinned out
by generations of trial and error like traditional ones. We will
just end up being tourists collecting the pretty sea shells instead
of archaeologists knowing what we're doing and where to look for
things.
(3) Back on topic - minimum wages, why and how.
(3a) It seems intuitively plausible that, at least sometimes, they
might make workers worse off by encouraging retrenchments.
(3b) It also seems plausible that market clearing might lead to
full employment without distortions like that.
(3c) But a lot of other things are also going on at the same time,
so we can't be quite that dogmatic about the outcome. In particular,
we don't know if we could tend close enough to equilibrium fast
enough - the distorting "shocks" might be material and long lasting
enough to frustrate a good enough outcome.
(3d) Unemployment is a proxy for other social problems anyway. There
isn't any a priori reason to believe that full "employment", achieved
through theoretically pure paths, would cure all these. For instance
full employment in a Malthusian extreme would still have people
starving at the margins - while working! And we can reasonably expect
that distress would show up earlier, as choices of harmful employment
like crime.
(3e) We don't know that for sure, of course, in any empirical sense.
It's just using thought experiments to frame a hypothesis that should
be tested, precisely as discussed in (2e) above.
(3f) The objective of minimum wages was to get people enough in an
era where there was enough to go around. That remains a different
proxy for avoiding social problems, and that remains a desirable
objective. The present argument is about means.
(3g) Simply on theoretical grounds, there are a number of related
measures that address the same areas, e.g. EITC and Negative
Income Tax.
(3h) These measures have different costs and benefits, and each
can be formulated to design out certain risk areas. My own favourite
(for a number of reasons I won't go into here), is a Pigovian approach,
a Negative Payroll Tax set at typical survival subsistence levels and
carried by some broad based tax with incidence on producers.
(3i) That's why I would LIKE a broad based assets tax that worked
without doing more harm than good, but why I would settle for a
GST/VAT if I have to.
(3j) It's also why I would like to explore any NPT side effects,
especially on foreign trade. I've been able to piggyback the
internal effects by establishing identities and invariants that
relate its predicted behaviour to actual social security/tax
interactions, except that certain lags have been engineered out.
But that still leaves a whole load of other areas that might
hide costs - or benefits!
That more or less goes over the headlines of my thinking in the areas
we've touched on in this thread so far. PML.
plaw...@arcbs.redcross.org.au
plaw...@arcbs.redcross.org.au wrote:
.
.
.
> (3h) These measures have different costs and benefits, and each
> can be formulated to design out certain risk areas. My own favourite
> (for a number of reasons I won't go into here), is a Pigovian
approach,
> a Negative Payroll Tax set at typical survival subsistence levels and
> carried by some broad based tax with incidence on producers.
Damn. I meant impact on producers - on this occasion there's a
material difference, for games theoretic reasons. BTW, Professor
Kim Swales favours something similar but arrives at his results
by a different path. He has some stuff at http://www.faxfn.org - PML.
Jim Blair
> In a FREE MARKET any company with operating costs higher than what they can get
> from sales will simply cease to exist. .....
>..... The selected price
> has NOTHING to do with the cost of inputs.
Hi,
Sounds to me like your first statement sets a lower limit on the price a
company charge. And the second statement contradicts the first.
,,,,,,,
_______________ooo___(_O O_)___ooo_______________
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USA. This message was brought to you using biodegradable
binary bits, and 100% recycled bandwidth. For a good time
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Jim Blair
> Incremental increases in the minimum wage have not been shown to
> adversely affect the economy.
>
> VS
Hi,
SOME studies have failed to show an adverse effect. Some studies have
shown an adverse effect on the employment of low skill workers (who
don't count all that much in 'the economy overall')
It depends on such things as the way the study was done, and especially
the size of the mw increase and the timing. There were certainly
studies showing drops in employment and increased unemployment after the
Bush mw increase. Then the economy was moving into a recession, so Bush
decided to raise both taxes and the minimum wage.
whitepilot
You may be so bold, but I don't really have an answer. After I thought
it up I was afaid that some liberals would think that it meant
something "unpleasant", which it doesn't. Of course, most 'em think
that anyone who happens to disagree with them is unpleasant at best,
anyway.
By the way, the last time the minimum wage was increased the prices of
all of the items on the menu at Denny's went up five cents. If you
don't beleive me, call and ask them. It may not sound like much but the
point here is that these costs do not just "disappear", nor are they
assumed by the "fairness elves", with whom some people seem to be so
enamored. Plus, if the price of a Grand Slam Breakfast increases any
more (which it will, if MW is increased again), then you will reach a
point where fewer people will be willing to go and pay for one. That is
bad for everybody.
Michael Vilkin
whitepilot <jaybird...@mosquitonet.com.invalid> wrote:
<...>
>By the way, the last time the minimum wage was increased the
prices of
>all of the items on the menu at Denny's went up five cents. If
you
>don't beleive me, call and ask them. It may not sound like much
but the
>point here is that these costs do not just "disappear", nor are
they
>assumed by the "fairness elves", with whom some people seem to
be so
>enamored. Plus, if the price of a Grand Slam Breakfast
increases any
>more (which it will, if MW is increased again), then you will
reach a
>point where fewer people will be willing to go and pay for one.
That is
>bad for everybody.
Why that is bad for everybody?
When we increase minimum wages, labor unions will go on strike
and demand higher wages also. Everyone will get higher wages.
Some unions already go on strike to extort higher wages.
Just today US Airways reached an agreement with extorters.
Democ rats are supporting to increase both minimum wages
and union wages. Actually, everyone will get higher wages.
Those who work for $6/hr will get $7/hr. Those working for $7,
will get $8. Those working for $8, will get $9 or $10.
I will pay a quarter more for my lunch.
It will not affect unemployment whatsoever.
Will I prefer to be hungry than to pay a quarter more
for my lunch? Will anyone go on hunger strike?
Everything will stay the same, except that democ rats will
get elected everywhere, from White house to Senate, to House.
Minimum wage increase is very good for bloodsucker democ Rats.
--Michael Vilkin
whitepilot
> get elected everywhere, from White house to Senate, to House.
> Minimum wage increase is very good for bloodsucker democ Rats.
That is the point. The only people who really benefit in the long run
from a minimum wage increase are Democratic politicians.
Howevever, everything will NOT stay the same. Depending on the amount
of the MW increase, there will be some unemployment (perhaps negligible
if it is a small increase), but there are other effects. Entry level
jobs as a whole will decline in number, making it even harder for
people who are unemployed now to get a job. Some employers, finding
that they have to pay their employees more, will cut back on other
benefits, such as health insurance. You just can't pay people more than
their labor is really worth without some negative effects.
Michael Vilkin
Lloyd-Jones" <ico...@netcom.ca> wrote:
<...>
> Factually, a raise in the minimum wage is a direct transfer
>of income from hirers to workers, and it gets passed on up
>the line to the people who own lawns, eat hamburgers, need
>their floors washed. Sorry 'bout dat.
You are absolutely right. Minimum wage increase is
redistribution of income from employers to employees.
People will pay more for goods and services. No problem.
If I pay more for something, money will go to the worker, and
he will spend it instead of me. Total consumption is the same.
Minimum wage worker will eat my pizza. So what?
Minimum wage increase will not increase unemployment or cause
recession. That's all bull.
The only problem is that labor unions will go on strike and say
that they pay more for everything, and they will demand higher
wages also. Wages and salaries will go higher _for everyone_.
Then everything will stay the same, except higher inflation.
Just more paper chasing the same amount of goods.
We should build a few jails for labor union leaders.
Then we can increase minimum wages safely.
--Michael Vilkin
Hyman Blumenstock
HB
Frank Pittel
In alt.politics.usa.republican Mike Coburn <michael....@gte.net> wrote:
: jim blair wrote:
:> David Lloyd-Jones wrote:
:>
:> > The price you can get for your output has nothing to do with the cost of
:> > your inputs. Duh.
:>
:> Hi,
:>
:> Think that companies can sell their product for less than the cost of making it?
:> And make a profit on volume? So we lose a dollar on every sale: we make it up by
:> volume?
: In a FREE MARKET any company with operating costs higher than what they can get
: from sales will simply cease to exist. Therefore the company you are using for an
: example cannot exist and is a figment of your imagination.
: Prices are set to maximize profits. It is determined by the producer that a
: certain price will maximize his profit. That is the profit per unit times the
: number of units. Increasing the price will decrease the number of units sold and
: decreasing the price will increase the number of units sold. The selected price
: has NOTHING to do with the cost of inputs.
If the company is going to stay in business the price a product is sold for will be
higher then the cost to produce it.
--
Keep working millions on welfare depend on you
-------------------
f...@deepthought.com
mason clark
This is the infamous equilibrium economics which is unaware of the existence
of TIME. In the current economic boom there are many companies pricing their
product not for a profit but for maximum sales.
Economic equilibrium is a fantasy of textbook writers. Do not read economic
textbooks.
Mason
Jim Blair
> The price you can get for your output has nothing to do with the cost of
> your inputs. Duh.
jim blair:
Think that companies can sell their product for less than the cost of
making it?
And make a profit on volume? So we lose a dollar on every sale: we make
it up by volume?
mason clark wrote:
>
> This is the infamous equilibrium economics which is unaware of the existence
> of TIME. In the current economic boom there are many companies pricing their
> product not for a profit but for maximum sales.
>
> Economic equilibrium is a fantasy of textbook writers. Do not read economic
> textbooks.
>
> Mason
Hi,
To argue against my own point: sure a company can sell their product for
less than (current) production costs. IF they expect that a larger
market can mean expanded production resulting in lower costs, so the
lower price can still turn a profit. But 'in the long run equilibrium',
the selling price must be higher than the production costs to stay in
business.
(Unless they have friends in Washington D.C. ;-)
David Lloyd-Jones
"Jim Blair" <jeb...@facstaff.wisc.edu> asks:
> David Lloyd-Jones wrote:
> > The price you can get for your output has nothing to do with the cost of
> > your inputs. Duh.
>
> jim blair:
> Think that companies can sell their product for less than the cost of
> making it?
Of course they can. It happens often.
> And make a profit on volume? So we lose a dollar on every sale: we make
> it up by volume?
Who said anything about making a profit? Damn Reagan Republicans, always
want a guaranteed profit built into everything any business does. :-)
<Mason Clark snipped>
> To argue against my own point: sure a company can sell their product for
> less than (current) production costs. IF they expect that a larger
> market can mean expanded production resulting in lower costs, so the
> lower price can still turn a profit. But 'in the long run equilibrium',
> the selling price must be higher than the production costs to stay in
> business.
> (Unless they have friends in Washington D.C. ;-)
In the long run there will be a tendency for things to sell for more than
they cost to make. Often for very much more than they cost to make.
As a general proposition, cost of manufacture is only very loosely connected
to market price.
-dlj.
jim blair
>
> > Think that companies can sell their product for less than the cost of
> > making it?
David Lloyd-Jones wrote:
> Of course they can. It happens often.
>
> Who said anything about making a profit? Damn Reagan Republicans, always
> want a guaranteed profit built into everything any business does. :-)
>
>
> As a general proposition, cost of manufacture is only very loosely connected
> to market price.
>
> -dlj.
Hi,
Maybe the 'new economy' is working as you suggest. I was just reading in TIME or
the WSJ or somewhere, that most of the new 'dot-com' companies are selling at a
loss to try to establish a market. But in cyber-space (unlike in real space) you
can't establish a market. The seller with the lower price is just a mouse-click
away, not several miles away. And the companies are staying in business by
paying their workers in company stock. And it is working because the stock price
keeps rising inspite of there being no profits, so the workers are happy and
rich.
So you think they can all continue to sell at less than cost, and make their
money from ever rising stock prices?
PS was it you that doesn't want email copies of posts? (or just Mason?)
--
,,,,,,,
_______________ooo___(_O O_)___ooo_______________
(_)
jim blair (jeb...@facstaff.wisc.edu) For a good time call
http://www.geocities.com/capitolhill/4834