Marshall Blake Explains Economics

From an Elizabeth Doran story in the Syracuse Post-Standard of Sunday, May 30, 2004 entitled 'Raise in Minimum Wage Opposed' --

Also, if New York joins the other 13 states with higher minimum wages than the federal standard, it will only add to the perception that doing business here is too costly and drive businesses out of state, Warner said.

Marshall Blake, president of the Central New York Labor Federation/AFL-CIO, disagrees.

He said the harmful consequences of raising minimum wage are not proven and notes today's minimum wage is worth less that it was when enacted, because of inflation.

"Paying higher wages is economically better for small businesses and for retail," Blake said. "If you gave every worker an extra $1 an hour, retail would be a lot better off. If workers get paid more, they can buy your products. It's a mystery why small business is opposed."

Opposing an increase in the state's minimum wage shows a lack of understanding of how capitalism works, Blake said. If workers earn more, they can buy more, he said.

How can you argue with that?

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Unfortunately it's hard to

Unfortunately it's hard to argue with those that are clueless. You might as well beat your head against a wall.

"Paying higher wages is economically better for small businesses and for retail..."

Well if that were the case then they would pay higher wages without being forced to by law...duh.

Matt, you do not know what

Matt, you do not know what you are talking about.

First, the story is not that a single firm will benefit by paying its workers higher wages, when all other firms don't. The claim is that all firms will benefit from the income effects of when all workers receive higher wages. This is a kind of Prisoner's Dilemma.

Second, the counterstory about how higher wages will result in a loss of employment lacks theoretical foundation. See, for example,

http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Sraffa3.pdf

or

http://www.dreamscape.com/rvien/LaborDemand.pdf

Third, the counterstory lacks empirical support. The more data economists have collected, the less support there has been for the employment-decreasing effects of small increases in the minimum wage. In fact, sometimes the effects measured in natural experiments have gone the other way. See Card and Krueger's Myth and Measurement.

Robert, the theoretical

Robert, the theoretical foundation outlined in your first link doesn't take into account time preference, among many other things. The models used in that paper are bunk.
As for some studies showing that minimum wage being raised doesn't hurt employment, you can't measure that type of thing with a few studies. There are so many more variables that you have no hope of isolating.
Anyway, if your argument is based on the idea that the workers are going to take the money from the buisnesses to spend on buisnesses and therefore 'help them', all that does is change the time preference of society to a lower time preference. Money isn't invested by the buisness as it might have been, there are less motivations for entreprenuers to open more buisnesses... Society is saving less overall, and will therefore be poorer in the future.

Jeff, I agree with your

Jeff, I agree with your point & conclusion, but I always thought (perhaps incorrectly) that:

An increasing rate of time preference = I want to spend now more than later, and this to a greater extent than before, with a lower rate of time preference meaning you want to spend now less than later. In other words, the high and low descriptors for time preference coincide with high and low interest rates. A 0% interest rate would be the lower limit to time preference (the future is equivalent to the present in terms of when you want to consume), and then the higher the rate the higher the discount on the future / premium on the present.

Needless to say what I just said doesn't negate or challenge your point- and I do agree that's an insightful way of presenting the problem of the fallacy of wealth production through general wage rises. Paying employees with the idea that they turn around and buy the goods they make is (a) churning the same money around, discounted for time, back to the employer, and (b) from the company's point of view diverting funds to current expenses versus future investment/production.

There is a point to paying "efficiency wages" (pay more to get more product from a worker), since the idea that 'you get what you pay for' holds in many cases (especially, I'd think, when an employer can percieve that the current prevailing wage rate is a good deal below an employee's projected marginal product at the employer's firm), but those entrepreneurial opportunities are best spotted by those in the position to act on that knowledge vs. a bureaucrat/state planner raising wages by fiat.

And in any case, that studies haven't shown a necessary decrease in employment cannot, in any case, support a conclusion that the policy impact is costless; rather, that the cost is not showing up in the employment figures examined (or that the methodology constitually can't see the cost impact). Raising wages by fiat imposes a cost, period. Raising costs means wealth production is diminished, one way or the other.

How can you argue with

How can you argue with that?

Reductio ad absurdum.

If this is so great for businesses, then why not raise the wage to $1000 an hour?

It's only true when the businesses make the extra money before they give it to their employees. Higher natural wages are good for local businesses. Otherwise you decapitate their growth potential.
Of course the AFLCIO would endorse this, it makes skilled workers (aka unionized) more economically attractive.

Brian, The most important

Brian,

The most important impact is on the invisible, involuntary unemployment of the marginal potential worker who has become illegal to employ at a wage which would give any benefit to an employer. If he never holds a job, he cannot show up in the unemployment compensation numbers. If he never belongs to a union, he can never affect union employment numbers. Of course, the primary motivation for minimum wage laws is to prevent competition to union labor as they effectively set a much higher still minimum wage level for their members.

Regards, Don

Businesses who refuse to pay

Businesses who refuse to pay a living wage are uneconomic and are in effect being subsidised by welfare payments.

Brian, You are right, I did

Brian,
You are right, I did mix up high and low time preference. Thanks for correcting me.

-Jeff

Businesses who refuse to pay

Businesses who refuse to pay a living wage are uneconomic and are in effect being subsidised by welfare payments.

Sorry, Jeff, you do not know

Sorry, Jeff, you do not know what you are talking about.

You say, "The theoretical foundation outlined in your first link does not take into account time preference, among many other things. The models used in that paper are bunk." The model outlined there, in fact, includes intertemporal utility-maximization, namely in section 2.4. So your statement that the models are bunk is just pure assertion, that is, hot air.

And, as far as "my" theoretical foundation goes, that paper is designed for an internal critique of neoclassical (and Austrian) economics. Thus, it merely has to be consistent with the assumptions of such theories, while contradicting their conclusions. In a sense, what is depicted is, in Mises' terms, an "Evenly Rotating Economy".

So I think those two papers, for example, show that even if saving were determined by the "time preference of society", whatever that is supposed to mean, firms need not respond to price incentives in the intuitive way so many rightists here expect.

And the bit about higher wages raising the demand for the commodities produced by firms was in the Syracuse article. My point was that Matt was not responding to a fair understanding of the article, but some straw person. Myself, I don't think firms are likely to expand production when they cannot sell what they can produce at current capacity. And, once again, the impact of interest rates on investment, as measured by various empirical studies, doesn't seem to support your view.

The response to cites of empirical studies seems to be that even though the supposed employment-decreasing effects of a small increase in minimum wages are "invisible", are a "cost ... not showing up in employment figures", and are masked by "so many more variables that you have no hope of isolating." These beliefs do not seem to be supported by either empirical facts and or logic. I don't think I will convert to such irrational fundamentalism.

From the article: "A local

From the article:

"A local business owner is worried that raising the state's minimum wage would place too much of a burden on small employers.

'It could kill some smaller businesses financially,' said Bill Ballard, who runs Eurest Dining Services, a contract food company operating Welch Allyn's The Lodge, the MONY cafeteria and others.

Eurest employs about 50 people at The Lodge, Welch Allyn's conference center. Most are paid about $2 more than minimum wage to start, Ballard said.

Increasing the state's minimum wage would pressure businesses such as Eurest to boost the pay of longer-term employees to compensate for increased entry-level wages, Ballard said.

'You can't hire an entry-level person and pay them what you pay someone who's been there for years," Ballard said. "The first thing our long-standing employees are going to want is an increase, as well.'"

And:

"Much of the business community opposes a state minimum wage increase, saying it would put small companies in a money crunch and could lead to layoffs. Business advocates also say it would drive the cost of doing business in New York even higher and put upward pressure on all wages."

I don't understand exactly what "straw man" I am accused of attacking. There are representatives of the business community in the article stating why increasing the minimum wage would hurt their businesses. Do all the empirical studies you wish, but I think (successful) business owners know more about how to run their businesses and what effects government policy has on them than anyone else does.

I want some of Robert's

I want some of Robert's drugs. It must take a fantastically powerful mind-altering substance to allow one to think in a world where the Law of Demand doesn't apply...

Noah, Click here.

Noah,

Click here.