Blogalink: On the power of 47

I found this link posted on LinkedIn:

The number 47 is out to destroy the Republican Party... read all about it... extra, extra!

I wish it were that easy.  Hope you enjoy it.

Selling Minimum Wage

No, wait:  Don’t click away - just a second.  Remember those relentless, obscure, dry as dirt Supply and Demand curves from high school economics?  Look, there’re two of them right now!  When the market for some commodity - like labor - is stable, there is exactly as much labor available (supply) as is needed (demand) at some particular price.   According to the cruel, inexorable laws of Supply and Demand,  you can mess things up if you artificially impose a price - say you pass a law to raise the minimum wage.  Even though neither Supply nor Demand have increased or decreased (the S and D “curves” have not changed position), the market is out of equilibrium.  Now there is a labor surplus - there is more labor available (supply) than is needed (demand) at that artificially imposed price.  People get laid off because they are too expensive.

That’s what they say - if you go messing with the markets you’ll get distortions like surpluses and shortages.  The President just raised the minimum wage with an executive action of limited scope.  But it sounds like raising the minimum wage is foolish or bad or counterproductive - like pissing into the wind?  Is that inappropriate?  For that matter, is it true?

The data do not always support the theory, straightforward though it may be.  Changes may be mandated nationally but they’ll take place locally and in a wider social context than is suggested by the small number of considerations in the graphs.  In other words, it’s complicated.  Oh, that whole discussion about raising the minimum wage, social justice, impact on families, impact on communities:  Maybe it’s bad for the brand if  a company dumps hundreds of workers in the face of a national crusade to help families of the working poor.  

Also, at a fundamental level, a lot of those low-skilled, low-wage jobs can not be automated away - yet.  People are still more flexible than most machines at that interface where the customer meets the product or service, e.g. counter workers, cashiers, store floor walkers.  So, apparently, people are not simply commodities that can be placed neatly on the graph.

Walmart has conveniently taken center stage to provide a case in point.  Walmart, the largest private employer in the country, will raise wages at least to $9/hour by April and perhaps to $10 by February.  Paul Krugman, without painting himself into any corners, suggests a number of possible reasons for this significant action - it will affect half a million employees.  

Walmart is under political pressure over wages so low that a substantial number of employees are on food stamps and Medicaid. …

Paying workers better will lead to reduced turnover, better morale and higher productivity.

Also in the mix is:

… workers are gaining clout thanks to an improving labor market, reflected in increasing willingness to quit bad jobs.

This third reason is the strongest.  It describes just plain-old, every-day, garden-variety supply and demand.  There is a greater demand for labor at any price - a shift in the demand curve.  There are no shortages or surpluses of labor, no distortions in the market,  just a new equilibrium point at a higher price.  In an improving economy with more jobs and better jobs, Walmart has to pay more for labor.  This explanation has the benefit of simplicity and does not rely on Walmart to act out of fairness nor on the basis of such employee-centric considerations as reducing turnover or improving morale.  So this change in Walmart policy is probably not the twinkle of a new dawn to a brighter day of employer enlightenment.

But many cities and states have also raised their minimum wages since Obama’s action in January of 2014.  

• the minimum wage in Oakland, California, will rise to $12.25 per hour and will rise accordingly with standard of living increases over the next several years.
• Since January 1st, 2015, San Francisco employers must pay their employees $11.05 per hour, and that rate will steadily increase to $15 per hour over the next four years.
• Alaska, current minimum wage has been kicked up to $8.75 per hour, and it will increase to $9.75 per hour on January 1st of next year
• Arkansas, whose minimum wage has been raised to $7.50 per hour, will raise to $8.00 per hour next year and $8.50 in 2017
• Washington's new, higher minimum wage took effect Jan. 1, 2015, a 15-cent increase to $9.47

And finally, to the hysterical alarm of the business community, there is the example of Seattle:    

Seattle, Washington, one of the strongest remaining bastions of liberal philosophy left in the country, passed a phased-in $15 minimum wage law earlier this year. The highest minimum wage in the country. The vote was unanimous and the throng outside cheered, but for many this is a loss from which they will never recover. It is a blow to the profitability of businesses that they just can’t take.

Cities and states are not Walmarts and these initiatives are not old-brain knee-jerk responses to the forces of supply and demand.  This is the “political pressure” that Krugman optimistically alluded to.

Perhaps announcing a “national crusade to help families of the working poor” is an exaggeration.  But President Obama certainly broke something loose when he took executive action in early 2014 and raised the minimum wage to be paid to federal contractors to $10.10/hour.  Without the passage of a law - (good luck with that) - that’s the most he could do.  The legal range of that action is so limited that it would seem to be only symbolic.  And so it is - powerfully symbolic.