Galbraith proposes 12 dollar minimum wage

[shiny!]

Re: Galbraith proposes 12 dollar minimum wage

The only way our massive government debt is going to be repaid is through inflation. This would be the kick needed to start the upward wage/price spiral that they want.

To point out the obvious, raising the minimum wage will make the prices of everything go up. People earning minimum wage and people on fixed incomes will feel the impact of higher prices the worst. There will be more (justifiable) calls to raise the minimum wage and social security payments to keep up. Wage/price spiral...

It's going to be very ugly.

[dcarrigg]

Re: Galbraith proposes 12 dollar minimum wage

Raise the minimum wage and I likely ship 100% of my production jobs to Mexico.

Why haven't you done so already? What is Mexico at, something like $4.50 per hour now? Depending on your payroll and the weight of whatever it is you make, you could save a lot of money at the expense of just a few headaches.

[dcarrigg]

Re: Galbraith proposes 12 dollar minimum wage

The only way our massive government debt is going to be repaid is through inflation. This would be the kick needed to start the upward wage/price spiral that they want.

Now there is an interesting idea...even if the effect is too small to terribly useful, simply 'getting the small-ball rolling' while all the pins are set up may just be enough to make the minimum wage a useful macroeconomic tool again.

[dcarrigg]

Re: Galbraith proposes 12 dollar minimum wage

The increases in minimum wages dcarrig mentions were pre GFC. And the two examples given, the UK and Canada, are not strong examples. Canada is an energy exporter in a commodities boom era, and the UK has similar unemployment to the US. I'm open to other examples...

GNK, I'll take a crack at answering that. I just wanted to first reiterate that the purpose of my post was specifically not to argue for or against raising the minimum wage, but rather, to argue that change in the minimum wage in either direction matters less from a macroeconomic point-of-view than it has since its inception.

Now that I've thrown in that caveat, we can take a look at minimum wage and employment.

I specifically took two anglo countries with similar living standards as examples. As you well know, there is no direct comparison with the US...no nation's economy approaches it, no living standard is quite the same, few have anything approaching its geographic size and population etc. So, while it's valid to some extent, using the argument that nations are just incompatible for comparison with the U.S. leaves us with few, if any, relevant comparisons.

To illustrate, one can look at other 'advanced' first world economies, although, that mostly leaves one with Commonwealth states and non-Germanic Northern Europe and Japan ($8.40-$10.90 minimum wage with 4.9% unemployment). This is because (as proponents of a high minimum wage in the U.S. tend to often be surprised to learn) no minimum wage exists in Germany, Switzerland, Austria and Scandinavia (or Italy for that matter), despite the far lower income inequality in those places. There are complicated legal and cultural reasons for why that works, and trust me, it's not a business-owners' paradise from the American perspective.

If one is to make the argument that commodity-currency nations such as Canada should be excluded, then one must conclude that Australia is out as well...so all one can do is put this in the best context possible. But the change 5 years ago in the U.S. is clear. Americans now have the worst of both worlds; a lose-lose trade-off. The US went from being a nation with a relatively low minimum wage with low unemployment to a nation with higher unemployment despite still having the low minimum wage. It's european unemployment without any of the perks. Here, this shows it better:



So, in Europe, here's what we're left with:


The Orange countries have equivalent minimums to the US, but have far different lifestyles and costs of living. The former communist countries and Turkey have lower minimum wages as could be expected, and the countries in brown have a higher minimum wage than the US. This doesn't leave much for comparison. But, in general, Northern Europe makes for much better comparisons with the U.S. than Southern Europe.

France does have a $12.18 (2-3 dollars higher than UK) minimum wage at 9.8% unemployment. Belgium has the same $12/hr minimum wage as france with 7.2% unemployment. The Netherlands has the same $12/hr minimum wage with a 4.2% unemployment rate. Even in the case of france, that's approaching twice the minimum wage for less than 1% unemployment, which would seem like a steal to a social-democrat.

Ireland may be the exception, Ireland has an $11.43/hr minimum wage with 14.6% unemployment. But if Iceland was a hedge fund stuck on the back of a fishing boat, Ireland was a hedge fund stuck to the Blarney Stone, and covered with twice as much BS and urine. Which is exactly the point.

Financialisation means more than the minimum wage now. Even for the lowest income earners. And since the non-FIRE economy - especially at small scales - means less than ever in the US at a macroeconomic level, why worry about the minimum wage? The balance sheets of financial firms are far more important as a percentage of GDP.

Now, imagine this conversation happening at the Treasury Department. Realize that even talking about the minimum wage was gone so far out of the mainstream as to have passed Krugman on its way to Galbraith.

Consider that, despite all of the lip-service paid to small-business, the power-elite care about small-businesses (27M businesses) about as much as they care about minimum wage earners (79M people and their families), which is to say, not very much. At a macroeconomic scale, it's all nearly irrelevant, and becoming less relevant by the day. Nobody cares about the income inequalities Mesyn191 is concerned about and the small businesses GNK's concerned about, for the same financialization processes that lead low-income folks into the payday loan and credit traps, leave demand gaps for small businesses which can necessitate increased borrowing. Government receipts drop; it borrows more and cuts services. At this point, FIRE growing means everyone else loses, and this despite what one does to tinker with the minimum wage, be it higher or lower. Apple alone (from another recent article) has enough cash on hand to pay 5 million minimum wage workers in the U.S. for a year before earning a dollar's interest or profit.

FIRE grows - some other large businesses may grow - everyone else is out in the cold. And the best part is, it seems today, that arguments to further deregulate the financial industry may be winning. The result will probably be the US shooting up above Europe on that graph above within the next 10 years.

High unemployment + Low opportunity + Small saftey net

[rjwjr]

Re: Galbraith proposes 12 dollar minimum wage

Why haven't you done so already? What is Mexico at, something like $4.50 per hour now? Depending on your payroll and the weight of whatever it is you make, you could save a lot of money at the expense of just a few headaches.

The only reason is that the savings was not worth the offsetting headaches in my personal opinion. Obviously, a lot of manufacturers feel otherwise since companies (not just US companies) have been shipping jobs to low wage nations for decades. This most recent recession and continuing economic environment has finally caused me to follow what many others have done for years. And, I'm still behind the curve as I'm only going to Mexico. GM and the big boys did that decades ago and have already left for even lower wage areas like China, South Korea, Vietnam, etc. Of course, their wage rates were a lot higher than ours so the financial gain was larger. Yes, Mexico is about $6/hour (fully loaded with benefits), GM and the big boys were what $45-$50/hour? My labor average is about $15/hour fully loaded.

[Milton Kuo]

Re: Galbraith proposes 12 dollar minimum wage

The only way our massive government debt is going to be repaid is through inflation. This would be the kick needed to start the upward wage/price spiral that they want.

To point out the obvious, raising the minimum wage will make the prices of everything go up. People earning minimum wage and people on fixed incomes will feel the impact of higher prices the worst. There will be more (justifiable) calls to raise the minimum wage and social security payments to keep up. Wage/price spiral...

It's going to be very ugly.

I suspect that wage inflation is something that Bernanke is hoping for because, in tandem with his buying longer-term Treasuries and MBS, it might reflate the housing bubble [I doubt it, though.] The problem with this wage inflation, though, is that it is not going keep up with real inflation. That is, no purchasing power is going to be gained. Thus, the only beneficiaries of this artificial wage inflation are going to be those who are heavily in debt and those who control the means of production and can pass the input cost increases to customers. For those of us without debt, we're likely to end up worse off. We'll earn more money nominally but our purchasing power will not increase.

As for raising the minimum wage. It's just not going to work because someone will offshore the jobs and eventually everyone else will have to offshore the jobs, too, in a race to zero. The only way to make a higher minimum wage work that I can see is to pass legislation that places an import duty on goods. The duty levied will be variable based on the average wages of the countries involved in the production of the good. For nations with a higher wage, the tariff can be zero.

An addition to levelling the playing field for American workers without engaging in a race to zero, this may also be more politically palatable as exporting nations cannot complain about being individually targeted. For example, there are calls for special taxes on imports from China based on accusations that China is a currency manipulator. This rankles Chinese officials as they feel they are being singled out and they insist they are not manipulating the exchange rate for the RMB with respect to the USD. Currency manipulation is a somewhat subjective observation and this ambiguity could result in loopholes where currency manipulators can avoid the penalties. However, a nation's average wage is a concrete number and export tariffs based on the exporter's average wage would be much more difficult to evade.

[rjwjr]

Re: Galbraith proposes 12 dollar minimum wage

rjwjr: That's why a permanent wage increase rather than a one time transfer is important. It keeps the money circulating like electricity in a circuit or water in a dammed river, if it isn't flowing no work gets done. However, gnk and others are correct that it would unfairly harm the productive economy and probably not even do much to the FIRE interests to rage minimum wage. Yet we have the problem of how people can survive with such a low wage?

davidstvz,

Sorry, but a "permanent" wage increase IS a one-time transfer. It's effect would only be temporary until everything stabilized around it, then another wage "stimulus" would be needed again. It may take a little time, which may lead you to believe that it is continuing to act like a stimulus, but eventually everything would equalize at the $12/hour level and you'd be saying "if we can only implement a $15/hour minimum wage blah blah blah". Next thing you know, we're at $15/hr and China is still at $15 a DAY. Even more jobs lost.

Secondly, you wonder how laborers can survive on ONLY $7.50 or $8.50 or $10/hour in the US, but there are hundreds of millions of Asians, Africans, Mexicans, and others that would feel like they were part of the 1% if they could earn $7.50/hour. I'd contend that your perspective is skewed. We could argue all day whether or not $7.50/hour is a "living wage", but the answer isn't for us to say. The market has spoken and the market tells me that there is plenty of demand for my jobs at $10/hour in the US in this economic environment. Unfortunately, I'm forced to ship those to Mexico at half that rate. Funny thing...they are extremely happy to have them. Doesn't that just blow your "living wage" argument all to hell.

[rjwjr]

Re: Galbraith proposes 12 dollar minimum wage

Before I get too bad of a reputation for shipping jobs to Mexico, consider the following facts. My labor rates jumped 7% in 2006, followed by 7.3% in 2007, and even increased by 5.7% in the recession/slowdown transistion year of 2008. Since 2008 we have been able to keep them flat. The point is, I don't have a problem paying higher wages when conditions dictate, as they did in the "boom times" of 2005-2008 in which my labor rates increased by over 21% compounded. However, I have a real problem with the government or some "living wage advocate" telling me that I have to pay $12/hour just because they think it's right. I have jobs at $10/hour and plenty of US citizens are willing to fill those right now. Mexico has jobs at $5/hour and plenty of Mexican citizens are willing to fill those right now. Supply and demand has spoken...in spite of your opinion, preference, or feeling.

[gnk]

Re: Galbraith proposes 12 dollar minimum wage

Good observations, and I understand your argument from a macro level.

However, we have to ask ourselves not only what altering the minimum wage accomplishes, but do the results of a change in the minimum wage differ if an economy is in recession, in growth, or if it is stagnant?

My biggest concern is that small businesses are on the ropes. I say that purely from anecdotal evidence, as I know many business owners. If anything, most that I know are not in growth mode. They are merely trying to hold on to their businesses and employees hoping that things will change for the better. They don't have access to the federal reserve, and many don't have access to labor abroad.

Thus if you raise the minimum wage during this current precarious state the US economy finds itself in, I think there would be tremendous damage to the small business sector and ultimately employment in general. Extremely so if the hike is up to $12.00 an hour.

A hike in the minimum wage is also effectively a tax hike on small business owners. So basically, in a weak economic environment, we will be taxing the people that have created the most jobs in the private sector.

In the FIRE industry, the minimum wage is pretty irrelevant. Large corporations, on the other hand, don't create the amount of jobs that small businesses create.



SOURCE

Also keep in mind that raising the minimum wage also affects the amount of payroll taxes employers have to pay. Thus the cost to the employer is more than just the cost of the minimum wage increase per hour.

[mesyn191]

Re: Galbraith proposes 12 dollar minimum wage

Sorry, but a "permanent" wage increase IS a one-time transfer. It's effect would only be temporary until everything stabilized around it, then another wage "stimulus" would be needed again.

Assuming this is true if it happened over a period of say 5-10 yr in between wage hikes I think most would be OK with that. Even businesses would be happy with it since agian, most consumers spend all their cash, you'd be spending more cash as a business owner but you'd get more back too.

Next thing you know, we're at $15/hr and China is still at $15 a DAY. Even more jobs lost.

This just sounds like a bunch of fear mongering. Its also a problem that is easily fixed. Just make outsourcing illegal or tax companies that do so far more. Suddenly keeping those jobs in the US becomes much cheaper. This is probably something that should be done irregardless of wether you dislike wage increases given the way jobs just keep getting outsourced even now.

Secondly, you wonder how laborers can survive on ONLY $7.50 or $8.50 or $10/hour in the US, but there are hundreds of millions of Asians, Africans, Mexicans, and others that would feel like they were part of the 1% if they could earn $7.50/hour.

Sure but you and others won't pay them the equivalent of $7.50/hr in their own country. You probably would make almost no money at all if you did, you'd maybe even lose money when the costs of managing workers in another country are factored in at that wage. No, you'd probably pay them about what the going wage already is in their country or maybe just a bit higher to boost your profits like most outsourcers do.

The market has spoken and the market tells me that there is plenty of demand for my jobs at $10/hour in the US in this economic environment.

Oh yea cuz' we're living in a free market with little or no distortion by monied interests or government right? Never no mind that unemployment is still very high even with juked stats and people are desperate for nearly any sort of work.

Unfortunately, I'm forced to ship those to Mexico at half that rate. Funny thing...they are extremely happy to have them. Doesn't that just blow your "living wage" argument all to hell.

"Forced" to outsource. Unbelievable. Also Mexico is a pretty shitty place or haven't you heard about what is going on down there with the drug wars and even shittier-than-the-US economy they have? You're just taking advantage of desperate people to better your bottom line, which doesn't blow any argument all to hell, it just makes you come off looking pretty bad.

[dcarrigg]

Re: Galbraith proposes 12 dollar minimum wage

In dcarrigg's post above, he uses 72.9 million "minimum and close wage workers". When I look it up at this link
http://www.bls.gov/cps/minwage2010.htm
I find exactly that number of total hourly wage workers, but only 6% of these are working at minimum wage and below, down to 4.4 million people working at minimum wage.

I did use that number in error, good catch. But I think it to be close enough that the number made sense to me and the point remains generally valid.

Total US employment is about 140 million at Q4 2011. Median US wage in 2011 was $26,364 or $12.67/hr. That should leave about 70 million making less than $12.67 per hour, even if only a fraction of them are at $7.25/hr and below.

I will endeavor to go back and tighten up the numbers when I get home to my data.

But in general you are right, I doubt it would have much of an effect on the grand scheme of things.

[thriftyandboringinohio]

Re: Galbraith proposes 12 dollar minimum wage

Well good catch right back at ya, I stand corrected as well.
If we raise the minimum wage from $7.25 to $12, then everyone between $7.25 and $11.99 gets more money, which is well above the 4.4 million people I mentioned.
My whole method, and therefor my conclusion, is out the window.
I went back and deleted my error-riddled post.

In the immortal words of Roseanne Roseannadana, "Never Mind"

[shiny!]

Re: Galbraith proposes 12 dollar minimum wage

mesyn191, I hate outsourcing as much as you do, but let me ask you two questions, if I may:

1. When you purchase clothing, appliances, electronics, food, anything... do you first make sure that it is Made in the USA?

2. Do you own and operate a manufacturing business in the United States?

[BK]

Re: Galbraith proposes 12 dollar minimum wage

+1,
Why doesn't anyone ever discuss the history of the Minimum wage in the United States. The Minimum wage was instituted by Northeast Politicians atempting to prevent the exodus of Textile Mills from the North to the South in the 1920s or 1930s. Well, how effective was that strategy?

Like all Politicians and bureacrats they took a unsuccessful law (the Minimum Wage) and repurposed it to be about a fair living wage.......instead of doing the smart thing that would have been to take the law of the books.
Instead, Politicians get behind taking a good law like the Glass Steagall act off the books - uneducated voters leads to the Politicians give us the Republic we deserve. ;-)

[flintlock]

Re: Galbraith proposes 12 dollar minimum wage

davidstvz,

Sorry, but a "permanent" wage increase IS a one-time transfer. It's effect would only be temporary until everything stabilized around it, then another wage "stimulus" would be needed again. It may take a little time, which may lead you to believe that it is continuing to act like a stimulus, but eventually everything would equalize at the $12/hour level and you'd be saying "if we can only implement a $15/hour minimum wage blah blah blah". Next thing you know, we're at $15/hr and China is still at $15 a DAY. Even more jobs lost.



Secondly, you wonder how laborers can survive on ONLY $7.50 or $8.50 or $10/hour in the US, but there are hundreds of millions of Asians, Africans, Mexicans, and others that would feel like they were part of the 1% if they could earn $7.50/hour. I'd contend that your perspective is skewed. We could argue all day whether or not $7.50/hour is a "living wage", but the answer isn't for us to say. The market has spoken and the market tells me that there is plenty of demand for my jobs at $10/hour in the US in this economic environment. Unfortunately, I'm forced to ship those to Mexico at half that rate. Funny thing...they are extremely happy to have them. Doesn't that just blow your "living wage" argument all to hell.

rjwjr, you are making the assumption we HAVE to trade with China or Mexico. I'm not 100% sure this HAS to be the case. Could we not seek out trade only with similar nations with similar rule of law, environmental laws, and concern for workers? Just askingI'm certain in the past it could have been done. Perhaps its too late now.


I am not for the raise in minimum wage either, but the fact is, $7.50 hour is not enough for a normal person to support himself cradle to grave. Not by a long shot. Probably not even $12 hour. Most Americans have the very false idea that they are actually paying all their bills and expenses throughout life. Most people have no idea what things cost in general. For most of us, we may save all our lives, but the last few years of our existence often will eat up all that and then more. I don't know the actual number, but I'd imagine much less than half of Americans pay their own way through life 100%. ( almost impossible to come up with an accurate number!) Not when you factor in all cost of running the US govt, medical costs, retirement benefits, etc. So the question is really, do we want a system of self-sufficiency, where workers earn enough to actually pay their way through life, or do we want a shell game system of redistribution of wealth, with the govt acting as the guy running the game? A game where only the insiders win?


Its the high income, high tax payer that is actually supporting most "working" Americans. The taxpayer is always asked to kick in the shortfall. The poor Asian, African, Mexican, etc you refer to may certainly be willing, but the fact is, he is not able to fully support himself, much less a family on his paltry wage. Same with the low wage American. Thats not his fault. Its the fault of a system guaranteed to bring down the standard of living of most Americans to a third world level if nothing changes.

Is it okay just because someone has good intentions of paying his way through life, for him to use the power of government to collect his shortfall? Is just working enough? Or is it immoral to bring kids into the world that you know you cannot support? To use the force of the government to take money from those who've earned it? Rather than keeping poor workers wages low in order to compete with the "world", shouldn't we be trying to improve his wage so he can have the dignity of supporting himself, rather than relying on government muscle to collect his shortfall for him?

People speak out of both sides of their mouths. They say they want economic freedom. Yet their idea of freedom means an ever more powerful government forced to tax even more to support the poverty that this "race to the bottom" has produced. So our misguided attempts to compete on the world economic stage , ultimately gives power to those who will ultimately enslave us all. Collectivism wins in the end by using our greed against us. We always want to run the world. Instead we should be seeking out a slice of the world to find peace and stability in.
.
The "system" we currently have is to some degree, tax payer subsidy of business. Tax payers subsidize these absurd wages and the can just gets kicked down the road for another generation to deal with. Some would say "Aha, its those businessmen who benefit so shouldn't they bear all the tax burden!" In a perfect world maybe, but we all know those businesses shrewd enough to find themselves a politician who can ease their burden are the ones who come out really smelling like a rose. For most small businessmen, buying political power is simply not within their reach. Oligarchy? Crony capitalism? Call it what you will. Its usually the small business who gets the shaft. The middle class if you will.

At some point, people on forums like this one will wake up and realize their various idealistic, Utopian, and free market systems will not work in a world with an exponentially growing population yet finite resources. Nations with no controls over who they trade with will only see their living standards drop precipitously. Some think that if you just slice the cake the right way, every one can get a bigger slice. When I see talk of more restrictive and selective trade, then I'll know someone gets it, and that America will be ready for a solution instead of just re-arranging the deck chairs on the Titanic. So far, on this forum, I can't see much evidence that anyone is even in the right solar system when it comes to a solution. Instead of trying to make things fit our out of date economic philosophy, we should be ditching that for something that might work.
Personally, I think the cows are already out of the barn so you guys can argue about who left the door open, but it won't make a difference.