Political Forums - Reich v. Boudreaux Minimum Wage

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Reich v. Boudreaux Minimum Wage

Here's Reich's recent article on raising the minimum wage:

http://www.salon.com/2014/04/10/robe..._hour_partner/

Notice the flow of his argument and his appeal to emotions by the demonizing of McDonalds and Walmart. Since I'm aware of Reich's background, I also know that he knows exactly why he's doing what he's doing: he knows his argument is not sound economically.

What's wrong with it?

Quote:

Donald Boudreaux takes on one of Robert Reich's recent arguments for the minimum wage. Reich writes:

A $15/hour minimum is unlikely to result in higher prices because most businesses directly affected by it are in intense competition for consumers, and will take the raise out of profits rather than raise their prices. But because the higher minimum will also attract more workers into the job market, employers will have more choice of whom to hire, and thereby have more reliable employees -- resulting in lower turnover costs and higher productivity.

Boudreaux responds:

Reich is correct that businesses are in intense competition for consumers. What he misses, however, is the fact that, precisely because of this intense competition, businesses have none of the excess profits that Reich presumes will be tapped into to pay the higher mandated wages.

. . . Intense competition eliminates excess profits; with no excess profits firms cannot, contra Reich, simply pay workers higher wages. Firms instead must respond to a higher minimum wage by some combination of hiring fewer low-skilled workers, working their remaining low-skilled workers harder and reducing these workers' non-wage pay, and charging higher prices for their outputs.

I would also add that it's strange that businesses that are in "intense competition" have not apparently, according to Reich, figured out that they can get lower turnover and higher productivity by themselves raising their wages.

But put that aside. Here's what I wonder:

How would Reich draw the supply and demand curves to get the result that prices of the firms' goods and services would not rise?

Also, note something else in Reich's statement above. He writes:

But because the higher minimum will also attract more workers into the job market, employers will have more choice of whom to hire,

I think he's right. With employers being more choosy, some employees get left behind. And who are they? The ones who are least productive. Reich has made a substantial concession, whether or not he realizes it.

Quote:

Originally Posted by bhunter (Post 209787)

With Boudreaux's argument? Quite simple he says comeptition for customers is intense and profits are low. His first point is silly because with wages where they are who has the money to consume, and From what I see on NBR profits sure as hell are not that low.

As well workers tend to produce only what is asked of them, should they find that their output does not meet the job requirements they simply produce more. As a matter of fact productivity here has increased significantly over the last few yeares, far more than salaries have increased.

First, an aside on 'productivity.' It's a misconception that this misleadingly-named indicator varies with how hard or skillfully workers work. It's simply output divided by manhours, and it really measures the effect of capital equipment. You might load 1000 tons of coal with 100 men with shovels, or with one man with a front-end loader. The one man is enormously more 'productive' than one of the 100 laborers, but it's not because he's working 100 times as hard.

Now, let's call minimum wage what it is, redistribution from the top of society to the bottom, from the few to the many. As a basic concept, this is likely to be a good thing. The global over-supply of labor is holding the market price of labor down. Market theory, which treats labor as a commodity, says fine, there will be an adjustment, falling prices signal producers to make less of a thing, until a new equilibrium is reached. Except, these are human beings we're talking about. Scrapping excess labor is not an option. Satisfying human needs is why we have an economy. Human beings are not disposable.

There are two ways human needs might be better met under these conditions: taxation and redistribution to meet the human needs of the 'surplus labor,' and increasing the share of output distributed as wages. My guess is that a combination of both methods will be best. The optimum mix is a technical question I am not qualified to answer.

But it's clear to anyone that the ever-increasing concentration of wealth brought about by current economic arrangements is suppressing demand, therefore holding down output and threatening us with a deflationary depression. For this reason alone it is imperative that distribution of economic output be reformed, that the trend of wealth concentration be reversed. Only free-market dogma, that refuses to recognize that blind market forces can in fact be bad for people, stands in the way.

I have some personal knowledge of minimum wage and good help. One of my brothers owned two restaurants. Sit down thirty tables freshly prepared meals type.

He would be the first to tell another three important facts. If wanting the best help, you pay them enough to keep them happy. More then minimum wages and offered benefits. Happy workers are good for business. Second any cost increases get passed along to the customer. Just enough to go unnoticed by the average patron. Never lessen the quality of the end product by cutting corners in materials.

The people would come week after week to eat and stay to visit. The employees were a big part in this.

He made money, is now retired over ten years and just turned fifty five.

Barney

I think it's perfectly OK that raising wages at McDonald's would also increase the cost of their "food" offerings. That's a "win-win" as far as I'm concerned.

I do not want to be a member of a society in which everyone I interact with is in poverty.

I have a friend from the Philippines who will not go back, even though he could "live like a King" on his retirement. He just does not want to be surrounded by millions in extreme poverty.

I do not want that happening here either. It is if you look around.

Quote:

Originally Posted by icenine (Post 209861)

But if you are living in a 15,000 sq. ft. McMansion on 15o acres you never have to see poverty all around you.

Quote:

Originally Posted by merrylander (Post 209883)

But if you are living in a 15,000 sq. ft. McMansion on 15o acres you never have to see poverty all around you.

Well you have to go to the store sometimes Rob..........
I think anyone who has walked the footbridge from San Ysidro into Tijuana will understand what I am saying....

Quote:

Originally Posted by icenine (Post 209893)

Well you have to go to the store sometimes Rob..........

No, you don't. If you're in the 1%, you "have people" who do that for you.

Remember George H. W. Bush's astonishment upon seeing price scanners at the supermarket? Though scanners had been around for decades, he'd never seen one because, quite simply, he never had the need to do his own shopping.

John

Quote:

Originally Posted by donquixote99 (Post 209799)

But it's clear to anyone that the ever-increasing concentration of wealth brought about by current economic arrangements is suppressing demand, therefore holding down output and threatening us with a deflationary depression.

Hence the push for all these trade deals like NAFTA and the TPP. It's all about expanding markets and that is all about moving away from the charred remains of the American middle class.

John