Posted on 09/06/2015 5:38:17 AM PDT by Kaslin
Hillary Clinton has a solution to the problem of low wages: Government should make them higher. Paul Krugman, writing in The New York Times, endorses the idea. There was a time when Krugman dismissed rhetoric like Clinton’s as economic quackery. These days he’s trying to sell the same snake oil as the politicians.
As I wrote in a column at Forbes, here is what economists know about the labor market: Employees tend to get paid their marginal product – the value they add to final output.
In a competitive market this is almost a truism. Wages are not a gift. They are not at one level, but could have been substantially higher or lower. They are what they are because of the employees’ skills and the market value of what they produce.
Now suppose that were not the case. Suppose there was a firm that paid employees more than their marginal product. That would mean the firm is collecting less from customers at the margin than it is paying out in wages. The firm can try to raise prices to cover the deficit, but then it would lose sales to rivals whose costs are lower and it would eventually go out of business. Or it could cover the deficit with lower profits. But then the investors would fire the manager and hire someone who gets the wages right and provides a market rate of return.
Suppose that there was a firm that paid employees less than their marginal product. In that case, rival firms would hire the employees away – since they are worth more than what they are being paid.
To summarize: a firm that pays workers more than they are worth cannot survive because it cannot match the prices and the rate of return to investors of its rivals. A firm that pays workers less than what they are worth, cannot survive because it will not be able to retain its employees. Competition in the marketplace tends to determine wages; there is a definite logic to what people are paid; and it has nothing to do with miserliness or generosity.
Also, economists know there is no free lunch. If one person has a gain – in the absence of any increased production — someone else must endure a loss. And we know a lot about those losses. For example, when government forces employers to pay higher wages, employers react by reducing other types of spending on their employees – less training and fewer fringe benefits, such as health insurance. On balance it appears that employees are left worse off. After a survey of the literature, economist Richard McKenzie wrote:
[I]f the minimum wage were raised to $10.10 an hour, for example, the estimated 16.5 million workers earning between $7.25 and $10.10 could lose nonmonetary compensation more valuable than the $31 billion in additional wages they are expected to receive.
In defense of Hillary, Krugman writes:
[E]mployers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
But here’s the thing. What works for Costco workers may not work for Walmart workers. And in any event does any rational person think that government should make decisions about these tradeoffs rather than competitors in the marketplace?
The other day The New York Times had two contrasting editorials on its op ed page. One, by Paul Krugman, called for a higher minimum wage and other labor market interventions. The other, by the chairman of Starbucks and his wife, Howard and Sheri Schultz, noted that:
[There are] 5.6 million people ages 16 to 24 in America who are not employed or in school. While some have lost hope in this population … we believe these young people represent a significant untapped resource of productivity and talent. With the right support and training, they can benefit our businesses and our communities.
The Schultz’s have formed a foundation and with the aid of other foundations and high profile companies their goal is to “provide jobs, internships and apprenticeships to 100,000 young people over the next three years.”
Although they don’t say so, their editorial clearly implies that the wage that is paid to these youths doesn’t really matter. What matters is they learn the life skills of showing up for work on time, following orders, conducting themselves in appropriate ways, etc. If they learn those skills, their wages will rise through time without any help from government.
Krugman, Clinton and others on the left say there is no economic harm in raising the minimum wage and in adopting other polices that close off job opportunities for those at the bottom of the income ladder. In making this statement they are ignoring the social costs. The Schultz’s write:
[T]he cost of youth disconnection — including health care, public assistance and incarceration — was $26.8 billion in 2013 alone. Quite literally, we can’t afford to do nothing.
And then there are the personal costs, which do not easily lend themselves to calculation in terms of dollars and cents.
I suspect these costs are not of much interest to either Krugman or Clinton.
Because some work simply isn’t worth 14 bucks an hour.
Welcome to Conservatism 101.
Falls on deaf ears for liberals.
When the mimimum wage in Ohio was raised back in 2004, it hurt me personally because my hours were slashed and I ended up making less per week with an $8 wage than I did with a $5 wage.
Try to explain that to a liberal, though, and I get nothing but blank stares, followed by, “But people deserve a living wage.”
But I guess schools are too busy focusing on global warming, transexuals and white privilege.
Try this - no matter what anyone says, the REAL minimum wage is zero.
That's what happens when your skills are priced out of the market.
They should have never stopped teaching civics
When I was still working every time we received a minimum wage increase our ours was cut. So instead a wage increase we got instead a wage deduction. Employers are not dumb, they know how to get around it
Amen
Raising the minimum wage won’t just change the total hours offered by employers, it will change who they offer them to. If employers are forced to offer $15 per-hour, they will seek $15 per-hour employees. These will not necessarily be the same as the previous $8 per-hour employees.
So even with no cut in hours and no automation (unlikely), there will be a change in who is offered work. Those now working for the existing minimum wage may not be employed at the new higher wage.
With around 90 million working age people not in the workforce $15 will provide an incentive to again take up a job search. Some of those will have higher skills, more education, and a better attitude then current job holders and thus may replace existing workers.
Strangely, proponents of a minimum wage hike never suggest a reduction of immigration (legal or illegal) as a way to bring about a rise in wages.
Not a chance. Schools are populated with millions of union NEA types. They have the power. They will never teach about limited government.
Nobody ever took ECON 101???
CORRECTION:
“Why HAVING a minimum wage is a bad idea.”
That is the liberal’s problem, he cannot understand that the term, “people deserve” is meaningless. Ask him what people are these who deserve and why do they deserve and he will sputter and turn red and babble catchphrases he has absorbed but never, never thought about for one second.
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