McLovin’ it

magazine’s Seth Ackerman picks up his favorite chew toy, Matthew Yglesias of Vox, doing the economics of the minimum wage. To be clear at the outset, I think it’s perfectly fine for Yggy to take on diverse topics in which he is non-expert. He’s smart, prolific, writes well, and provokes worthwhile discussion. His economic commentary is usually worth reading, though susceptible to the ‘never in doubt’ syndrome.

The basic target of the Vox piece is whether the U.S. minimum wage could go up to $20 an hour without causing mass job losses. Yglesias is reacting to a New York Times story about the blissful status of minimum wage workers in Denmark, another Nordic social-democracy where everything is better except maybe the food and music.

I think Brother Ackerman overthinks and overworks this question, as far as criticism of Vox goes. Yglesias’ basic argument is an exceedingly brief blog post; it’s not a monograph. Said argument, really not more than an assertion, is that Denmark manages to keep employment high not because of a high minimum wage but thanks to their system of “education, training, active labor market policy, and regulation.” The finger-wagging implication is that the high Danish minimum wage depresses their fast-food employment and could do so much more in the U.S., given our medieval social welfare system.

The Times article notes a number of differences between the U.S. and Denmark that purportedly cloud any comparison of minimum wage effects, but on closer reading, all of them are true differences but at best irrelevant to any such comparison. For instance, it is noted that the fast food industry is more profitable in the U.S., so that means we can’t manage a higher minimum wage? In fact it strengthens the argument for a higher U.S. wage.

The only relevant factoid in the Vox article, via the Times story, is that there are more McDonalds establishments in the U.S. than in Denmark. This means nothing. A minimally relevant comparison would be to the fast food industry as a whole in Denmark, or better, the low-wage sector as a whole. And who says we need a bigger low-wage sector, anyway? The proof in the Danish pudding is their good overall labor market conditions.

So Ackerman is using a sledgehammer to liquidate a flea. He shows there is no correlation between the number of McD franchises and the McWage, which proves more than is necessary.

How high should our minimum wage be? Without doubt it could be higher than the $10.10/hr level proposed by our socialist-Islamist president. I’d assign the wage-setting authority to a triumvirate consisting of John Schmitt, Dean Baker, and Larry Mishel. A special pen surrounded by barbed-wire fencing would be available to dissenting economists who wanted to lodge a protest, in keeping with the current state of civil liberties in the U.S.


McLovin’ it — 7 Comments

  1. I’ve soured on Jacobin which is often good. Yglesias is right but puts it in a dickish way, which of course sets off the Jacobites. His point is that it’s not that higher minimum wage that makes the Danish economic better, it’s all this other stuff. Of course shame on Yglesias for saying the minimum wage would cost jobs.

    “The good news about Denmark is that their unemployment rate is only very slightly higher than the USA’s and was lower in the recent past. The Danish economy as a whole does a good job of keeping people employed, and it also does a much better job than the American economy of delivering high living standards for the poor. But mandating high wages for fast food workers has more or less the impact you would expect — low levels of fast food employment. The relevant question for the United States then becomes what would we have people do if half the fast food restaurants shut down?

    Denmark proves that this is not an unanswerable question. There is something that they are doing in terms of education, training, active labor market policy, and regulation that is allowing them to maintain a low level of unemployment without nearly as much reliance on low-wage, low-productivity fast food jobs as we see in the United States. But that’s the secret sauce, not the high minimum wage for fast food workers.”

    He admits that the high minimum wage doesn’t “cost jobs” though in that Denmark has the same unemployment rate.

    I am a little sympathetic with Yglesias in that there’s seems to be a lack of focus on demand management (meaning monetary policy since the currency and fiscal policy are off limits) on the left.

    Baker and Krugman will focus on it, but a not a lot of the people who tout the minimum wage (which I support).

    If the Fed was running a high pressure, full employment economy, labor markets would be tight and McDonalds would be forced to spend more of its profits to compete in hiring. Just raising the minimum wage won’t solve Fed Fail.

    We’ll see how Yellen does.

  2. If the average wage of Walmart nonsupervisory workers were raised to $100 an hour, the price of $10 items would have to be raised to $15. Walmart labor costs are 7%. Nonsupervisory workers average $12 an hour. 12×8 = almost 100. One of the 12s is there already. 7×7% = 49%.

    If we double today’s Walmart’s nonsupervisory hourly pay to $24 and throw on an extra 25% for benefits to make $30, Walmart prices would rise about 10%.

    A $15 minimum wage would shift about 3.5% of income from the 55 percent of the workforce who garner 90% of income to the 45% who scratch only 10%. $8,000 average raise X 70 million (45% of 140 million + 5% at minimum now) = $560 billion out of $16,000 billion GDP.

    Somebody challenged me that raising Walmart prices 10% (only 3.5% at $15 min) would take $26 billion from the poorest consumers. I pointed out they could take it out of the extra $560 billion they got from the $15 minimum wage (not $30). 45% of the workforce is not going to be sent home from work by a 3 1/2 percent shift in income share.

    100,000 out of (my estimate) 200,000 gang age, Chicago males are in street gangs – I say because they wont work for a minimum wage several dollars below LBJ’s 1968 minimum wage ($10.95) after per capita income about doubles. A $15 an hour minimum wage might actually put some American born workers back to work in America’s McDonald’s.
    * * * * * * * * * *
    ”Denmark has no minimum-wage law. But Mr. Elofsson’s $20 an hour is the lowest the fast-food industry can pay under an agreement between Denmark’s 3F union, the nation’s largest, and the Danish employers group Horesta, which includes Burger King, McDonald’s, Starbucks and other restaurant and hotel companies.”

    What Denmark does have – along with most of continental Europe and French Canada and Argentina and Indonesia — is a labor market setup called centralized bargaining where every employee doing similar work (e.g., retail clerk) negotiates one common labor contract with all employers doing similar business (e.g., Safeway, Best Buy, Walmart).

    $20 an hour + benefits: it’s the (centralized bargaining) free market!
    * * * * * * * * * *
    Last breath: the difference with Denmark is not education:
    Progressive economist Ha-Joon Chang says that our much increased education doesn’t add much productivity to the economy. It is just what we have to do to keep up with what others are doing. He uses highly efficient and productive Switzerland as an example: going from 15% college to 40% over two decades.
    (2011 book, 23 Things They Don’t Tell You about Capitalism)

    Berkeley political scientist Martín Sánchez Jankowski spent nine years on the streets of five NYC and LA poverty neighborhoods and discovered, among other things, that ghetto schools don’t work because students (and teachers!) don’t see anything remunerative enough in the labor market when they finish school to make it worth the extra effort.
    (2008 book, Cracks in the Pavement: Social Change and Resilience in Poor Neighborhoods)

    Some truly free labor market education may be gained reading: Were You Born on the Wrong Continent?: How the European Model Can Help You Get a Life by Thomas Geoghegan.

  3. Reply to myself:
    I am glad the minimum wage discussion has moved up to a seriously amount of money.

    Liberal and conservative economists too often argue how much difference a dollar or two dollar min wage raise would make to poverty or employment. A dollar minimum wage raise would shift about one-quarter of one percent (because a lot fewer recipients) of income share — which national effect should disappear in the noise of other factors: unmeasurable.

    Seems to me that many of the employment studies focused (like everyone else!) on fast food which because it has the highest labor costs at 33% (Walmart’s at 7%) which could in effect amplify results that might otherwise be below audibility. Seem to remember most showing no effect one way or the other anyway.

    (E.I.T.C., at $55 billion, shifts one-third of one percent of income — not leaving overall poverty measurably effected either.)

  4. My first question would be, do we really need as many fast food vendors as we have in America? Perhaps if the labor market priced some out of existence, investment would turn to more productive and healthier industries where skills are actually needed and better compensated. A higher wage floor could have many positive externalities. The failure of inefficient businesses with negative externalities is a market outcome.

  5. Considering the extraordinary levels of corporate wealth and income in recent years, as well as the superlative incomes of the corporate executive corps, why is the first assumption that if bottom wages are raised it will become necessary to raise prices of the product? What happened to the ever present market forces that will be at play? Does competition between companies for the customers’ dollars cease to exist because low paid workers get a raise?

    As the original NY Times article made reasonably clear, it is not government enforced minimum wage that is needed. The need is for strong, industry wide labor union representation. There isn’t any likelihood of either party will make up a Congress that will adopt a truly strong minimum wage.

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