Posts Tagged ‘minimum wage’

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The history of capitalism is actually a combination of two histories: it’s a history of employers attempting to hire workers and develop new technologies to make profits and expand the reach of capitalism; it’s also a history of workers banding together to improve wages and working conditions and imagine ways of moving beyond capitalism.

The World Bank’s World Development Report, currently in draft form, comes down firmly on the side of employers and their historical role.

The theme of the 2019 report is the “changing nature of work.” As envisioned by the reports authors,

Work is constantly being reshaped by economic progress. Society evolves as technology advances, new ways of production are adopted, markets integrate. While this process is continuous, certain technological changes have the potential for greater impact, and provoke more attention than others. The changes reshaping work today are fundamental and long-term, driven by technological progress, globalization, shifting demographics, urbanization and climate change.

Beneath the typically lofty but vague rhetoric, the two trends that haunt the report are the increasing gap between the top 1 percent and everyone else and the jobs that will be eliminated with the use of automation and other labor-saving technologies—leading to “rising concerns with unemployment, inequality and unfairness that are accompanying these changes.”

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So what does the World Bank recommend for beleaguered workers, who are falling further and further behind the tiny group at the top and whose job prospects are threatened by new technologies?

Here, the World Bank reveals which side of history it’s on. It goes after the kinds of protections workers have long fought for, in both developed and developing countries, but which the world’s employers consider onerous and that make the price of labor power too high. In particular, the World Bank focuses on “high minimum wages, undue restrictions on hiring and firing, strict contract forms” that make workers both costly to hire and difficult to dismiss. In other words, the World Bank recommends exactly what employers have always wanted: flexible labor markets.

Rapid changes to the nature of work put a premium on flexibility for firms to adjust their workforce, but also for those workers who benefit from more dynamic labor markets.

That’s what the World Bank offers to the world’s employers (“flexibility”), coupled with an empty promise to the world’s workers (“more dynamic labor markets”).

But, as even the World Bank recognizes, such changes would leave the world’s workers even more destitute than they are right now. That’s why they shift the focus to a discussion of a a “new social contract. . .to promote fairness and equality of opportunity for people and firms.”

Possible elements of hypothetical social contract could include: (i) creating jobs; (ii) investing early in human capital; (iii) taxing platforms and superstar firms; and (iv) introducing basic income guarantees.

Once again, it’s exactly what private employers want—more workers with additional skills, a redistribution of monopoly rents, and a minimum income for their workers—as long as employers themselves don’t incur any additional costs. Employers retain their control over the surplus, and therefore over both jobs and workers. And the changes proposed by the World Bank promise them even more surplus as they use new technologies and change the nature of the work that is done for them.

What remains intact in choosing the employers’ side of history is that work, however much it is envisioned to change, is still done by employees for their employers. Governments and the rest of society are then charged with the responsibility of cleaning up the mess left by employers, including the dearth of required jobs and the mass of workers who are too impoverished and insecure to satisfy their own needs.

The idea that the worlds of technology and work are quickly moving far beyond the control of employers—well, that’s the side of history the World Bank remains incapable of comprehending.

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We’ve been hearing this since the recovery from the Second Great Depression began: it’s going to be a Golden Age for workers!

The idea is that the decades of wage stagnation are finally over, as the United States enters a new period of labor shortage and workers will be able to recoup what they’ve lost.

The latest to try to tell this story is Eduardo Porter:

the wage picture is looking decidedly brighter. In 2008, in the midst of the recession, the average hourly pay of production and nonsupervisory workers tracked by the Bureau of Labor Statistics — those who toil at a cash register or on a shop floor — was 10 percent below its 1973 peak after accounting for inflation. Since then, wages have regained virtually all of that ground. Median wages for all full-time workers are rising at a pace last achieved in the dot-com boom at the end of the Clinton administration.

And with employers adding more than two million jobs a year, some economists suspect that American workers — after being pummeled by a furious mix of globalization and automation, strangled by monetary policy that has restrained economic activity in the name of low inflation, and slapped around by government hostility toward unions and labor regulations — may finally be in for a break.

The problem is that wages are still growing at a historically slow pace (the green line in the chart above), which means the wage share (the blue line in the chart) is still very low. The only sign that things might be getting better for workers is that the current wage share is slightly above the low recorded in 2013—but, at 43 percent, it remains far below its high of 51.5 percent in 1970.

That’s an awful lot of ground to make up.

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The situation for American workers is even worse when we compare labor productivity and the wage share. Since 1970, labor productivity (the real output per hour workers in the nonfarm business sector, the red line in the chart above) has more than doubled, while the wage share (the blue line) has fallen precipitously.

We’re a long way from any kind of Golden Age for workers.

But, in the end, that’s not what Porter is particularly interested in. He’s more concerned about what he considers to be a labor shortage caused by a shrinking labor force.

So, what does Porter recommend to, in his words, “protect economic growth and to give American workers a shot at a new golden age of employment”? More immigration, more international trade, cuts in disability insurance, and limiting increases in the minimum wage.

Someone’s going to have to explain to me how that set of policies is going to reverse the declines of recent decades and usher in a Golden Age for American workers.

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Posted: 18 September 2017 in Uncategorized
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A couple of weeks ago, I published a guest post, by minimum-wage expert Dale Belman, about a controversial study of the effects of an earlier decision in Seattle to raise the local minimum wage to a level much higher than the federal minimum wage of $7.25 an hour.

Now, in Trump’s America, we’re seeing exactly the opposite: an attempt, on the part of the Republican-controlled Missouri legislature, to roll back local minimum wages to levels that are no higher than the state minimum of $7.40 an hour.

Of course, that’s already happened in other places, such as Ohio and Alabama, which affected minimum-wage workers in Cleveland and Birmingham. And, in all these places, Republican legislatures have used the arguments mainstream economists—but not most empirical studies—have offered them: higher minimum wages might seem to be the best way of helping low-wage workers but, since they lead to a loss of employment (either though dismissals or automation), workers earning at or just above the existing minimum wage are actually hurt.

Well, I’ve dealt with that argument many times on this blog, including a post I did in July of last year, in which I argued that employers’ profits were the real obstacle:

The fact is, when employers threaten to let workers go (or not hire additional workers) if the minimum wage is increased (or mainstream economists make the argument for them), they’re attempting to protect their bottom line. If they kept their existing workers, so the argument goes, their profits would fall; and if they wanted to maintain their current level of profits, they’d have to fire some of their workers and replace them with one or another form of automation. It’s all about pumping out the maximum profits from their employees.

Profits also enter the story in a second way. Private employers see the possibility of compensating for minimum-wage-related job losses—by offering workers public relief and by creating new jobs through public programs—as a challenge to their existing control over workers, jobs, and ultimately profits. That’s the second reason they oppose an increase in minimum wage, because they know full well society has the means to make up for their willingness to eliminate jobs. But then their own role in the economy and the profits that come from that role are called into question.

For both those reasons—the threat to fire workers and the threat to their monopoly as employers—profits are the real obstacle to raising the minimum wage.

Republicans and business groups in Missouri, as elsewhere around the country, are doing all they can to push back on the wave of municipal minimum-wage increases in order to safeguard those profits—with the same boiler-plate rhetoric:

“We can’t let the biggest economic engine in the state, St. Louis, become an island that employers avoid due to higher labor costs,” Missouri Chamber of Commerce & Industry President Daniel Mehan said in an interview Friday. Elevated city minimum wages would cost workers jobs, encourage businesses to automate, and create confusion along city borders, he said.

What makes Missouri unique is the higher minimum wage in St. Louis, of $10 an hour, had already been in effect for months before the state pre-emption law kicked in. And workers were already experiencing the benefits:

Bettie Douglas, a worker at a St. Louis McDonald’s restaurant, expects to take a pay cut this week, though she said her manager hasn’t informed her of a new rate. Before May, the 59-year-old received $7.90 an hour, she said. Ms. Douglas, an activist seeking higher minimum wages nationwide, earned about $63 more a week because of the higher wage floor, money she said allowed her to have her water turned back on and buy school supplies for her teenage son.

“It’s made a big difference,” she said Friday. “It’s still a struggle, but I had a little extra to pay my bills.”

Some employers will of course take advantage of the new law and roll back their workers’ wages. But others aren’t convinced it’s a good idea:

“People would be angry and then they wouldn’t do a good job and they’d be resentful,” said Harman Moseley, whose STL Cinemas operates four local theaters, including the Chase Park Plaza, Moolah Theatre and MX Movies.

Of course, workers are going to be angry and resentful—and perhaps even more.

There are, I think, a couple of lessons here: First, working-class movements to improve their lot can in fact succeed, making it difficult—but, of course, not impossible—to roll them back. Second, there’s a reason why working-class Americans are suspicious not only of their employers, but also of politicians and the government. That’s particularly true when politicians are so closely aligned with their employers.

My guess is both of those lessons will be put to the test even more in Trump’s America.

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As regular readers know, I have written about minimum wages many times over the years on this blog. However, after reading about the much-publicized study by Ekaterina Jardim et al., according to which Seattle’s decision to raise the minimum wage actually hurt low-wage workers, I decided to turn to my old friend and minimum-wage expert Dale Belman to see what he thought of the study. Dale is a professor in the School of Human Resources & Labor Relations at Michigan State University and coauthor (with Paul J. Wolfson) of What Does the Minimum Wage Do? I am pleased to publish his guest post here. 

Seattle embarked on an audacious policy change in raising its minimum wage from $9.47 to $15.00 over five years.* The first two increments, to $11 in April 2016 and $13.00 in January 2017, have gone into effect. This policy has notable positive effects for employed low-wage workers and also provides an “experiment” central to the ongoing debate over the employment effects of the minimum wage.

The conventional analysis of the minimum wage suggests that, in the face of a typical (downward-sloping demand curve), a higher minimum wage must cause a reduction in the employment of workers “bound” by the new minimum wage–those who currently work between the old and new minimum wage. However, since 2000, a large body of empirical research has found few-if-any employment effects for historical increases in the minimum wage. Although not universally accepted, many economists are increasingly open to the view that moderate increases in the minimum wage may be good policy for low- wage workers, increasing their earnings with negligible employment costs.

An important remaining issue is whether increases outside of the range of historical experience, such as the increases sought by Fight for $15, reduce employment. The Seattle minimum-wage increase provides data to test the employment effect. One study, “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle,” by Jardim et al., uses Washington state unemployment data that, unique among such state data sets, provides not only quarterly earnings, but quarterly hours of work. This allows computation of the hourly wage. Using established regression methods, the authors report that the increase in the minimum wage to $13 resulted in a 6.8-percent decline in low-wage employment in Seattle. It should come as no surprise that this result reinvigorated the argument that the minimum wage causes large declines in employment, and has been widely featured in the Washington Post (but, interestingly, not the New York Times).

The results are not as decisive as portrayed by Jardim et al., as there are several unresolved methodological issues. The first is that the estimated elasticity of employment (the percentage change in employment for a 1% change in the wage) is well outside the bounds of prior research. Jardim et al. report an elasticity of -3. In contrast, the work of [first name] Neumark and [first name] Wascher, the most prominent researchers arguing for a negative employment effect, finds an average elasticity of -1. Jardim et al.’s elasticity is particularly unexpected since, although Seattle’s $13 minimum wage is high for the United States, it is not unusually high relative to Seattle’s wage structure. Second, the study finds the increase in the minimum wage is associated with a 21-percent increase in employment and hours among workers earning at least $19 per hour. Given that high-wage workers employment should only be marginally affected by the increase, this suggests the study does not properly account for the employment effects of Seattle’s booming labor market. Finally, the study excluded the 38 percent of Washington employees who work for firms with multiple locations. These employees cannot be included because the U.I. data does not record whether they work in Seattle. These multi-location firms, which tend to be larger than single location firms, may respond differently to the minimum wage than single location firms. If there is a shift of employment from single- to multi-location firms in response to the minimum wage, the large magnitude of the elasticity may well result from measuring only part of the relevant labor force.

The literature on the minimum wage developed “falsification” tests that can be used to determine whether or not an estimated results from spurious correlations. These include such issues as estimated results that may be well outside the range that could be expected from a minimum wage increase, whether the effect is found among groups that should not have been affected by the minimum wage, and whether the effect of the minimum wage is found prior to its implementation.

Until the authors include these tests in their research, we cannot know if their results do in fact represent a serious challenge to the emerging consensus on the employment effects of increases in the minimum wage.

 

*I want to acknowledge the work of Michael Reich et al. and John Schmidt and Ben Zipperer for the analysis of “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle.”