My Modest Proposal on the EPI Study
In case you folks are curious, the reason I’m focusing so much on DK’s position is that I think he is representative of a large fraction of self-described progressives. So I really want to push people on this, because I think this EPI study and Sen. Warren’s remarks are ludicrous (unless their point was to show that standard measures of “productivity growth” are horribly flawed). Here’s what I said to Daniel over at his blog:
Argh! Daniel, just settle this once and for all: Do you think there are at least 1000 workers in the United States who produce more than $20/hour for their employers, yet they are only earning minimum wage?
(A) If you *do* think that, then I would like to hear your thoughts on how the labor market can be so screwed up. Then, I want you to pitch me a business plan for how we can hire these 1000 (at least) people at $10/hour, and still make $10,000 in pure profit per hour.
(B) If you *don’t* think that, then why aren’t you denouncing this EPI study as, at best, terribly misleading and dangerous to low-skilled workers?
The ironic thing is that I actually don’t self-describe as progressives…
…if they get too close I make sure to scare them away with my thoughts on drones and gun control.
I actually worry I am NOT representative of progressives. I don’t expect people to know the difference between MRPL and Y/L but I worry sometimes whether $22 passes the smell test for some people. I don’t think that crowd is too big, and they’re probably ignorant about all sorts of things… but sometimes I worry that it is.
FWIW Daniel I wasn’t sure if you called yourself a progressive, and I tried to word it accurately.
Doesn’t change the thrust of the post.
Since I’m being grilled here too, here was my response on my blog:
“I love this “once and for all” language as if I haven’t been clear! No, I don’t think that (barring weird exploitative modern-slavery type relations which almost certainly exist somewhere but for which the minimum wage is not the solution).
That leads me to (B).
Because it’s not misleading. The title of the damn paper is advocating a $10 minimum wage. I doubt anyone will mistake that for advocacy of a $20 minimum wage.
Some people are pretty slow on the uptake, but I think most know the difference between $10 and hour and $20 an hour.
I didn’t read the CEPR thing that Warren was pulling from, but I doubt they said anything like that either.”
So, you *are* saying that “standard measures of ‘productivity growth’ are horribly flawed?”
I wouldn’t put it that way, no.
Standard measures of productivity growth are not standard measures of marginal revenue product growth.
Also, if you agree Daniel that there are 999 or fewer workers getting systematically underpaid, then what in the world should we do with Warren’s “What happened to the other $14?” She spouted utter nonsense, according to your own views as stated here, and yet you posted that interview on Facebook saying something like, “I’m not so keen on raising the minimum wage, but check this out. Interesting stuff.” One would not have thought from your comments thus far, that you thought Warren was completely ignorant of how the labor market works. You linked a Daily Kos article saying she schooled someone on economics, after all, with no objection on your part.
Right – I don’t think she grasps the nuance of the Y/L or the MRPL thing. I think I’ve said that a few places now.
This is a talking point/rhetorical thing I think.
A bit of a double standard because I knock Ron Paul for that sort of thing? Maybe, but the fundamental point underlying Warren’s point is a lot more sound than the one underlying Paul’s, so I’m not too worried about that.
Certainly I’ve made a point of saying that it’s wrong to use the figure that way, haven’t I?
What I loved about the testimony is that Warren clearly familiarized herself with Dube’s work and knew exactly when to toss it from one witness to another when different points arose.
The $14 thing specifically was a rhetorical flourish – that tends to happen in Congress.
When she starts demanding a $22 minimum wage the way Ron Paul demands “end the Fed”, I’ll get more concerned about rhetorical flourishes.
DK wrote:
Right – I don’t think she grasps the nuance of the Y/L or the MRPL thing. I think I’ve said that a few places now.
This is a talking point/rhetorical thing I think.
A bit of a double standard because I knock Ron Paul for that sort of thing? Maybe, but the fundamental point underlying Warren’s point is a lot more sound than the one underlying Paul’s, so I’m not too worried about that.
Certainly I’ve made a point of saying that it’s wrong to use the figure that way, haven’t I?
What I loved about the testimony is that Warren clearly familiarized herself with Dube’s work and knew exactly when to toss it from one witness to another when different points arose.
It sounds like you’re saying, “I loved that she could read a paper and throw statistics out in a hearing, even though she had no clue what they meant and was using them to illegitimately advance her prior policy position.” But I’m sure you must not *mean* that, so I’ll give you a chance to clarify if you want. Yet that sure seems like what you just wrote here.
I think there’s quite a bit of difference between not elaborating on the finer points of marginalism and having “no clue” about a set of statistics!!!
And I don’t think there was anything particularly illegitimate about it, unless by “illegitimate” you just mean “that might not be the way that an economist would have argued it”.
She noted productivity growth.
I had asked you this before and I don’t think you answered: you do agree that Y/L and MRPL ought to exhibit comparable behavior, right?
If you do then it seems like you have to bend over backwards to call it “illegitimate” to point to growth in Y/L, make a basic point about labor productivity and infer something about MRPL (which we don’t have data on).
How bad is that, really?
I bet I could find Austrians using productivity metrics as the BLS defines them to make points about labor productivity.
OK Daniel so when you said (paraphrasing) “after reading that EPI paper, now I don’t think the minimum wage is as binding,” the $22/hour figure had nothing to do with it?
Sure it did.
You agree that if Y/L is growing MRPL probably is too, right?
If so, why wouldn’t growth in Y/L lead you to conclude that MRPL is growing and therefore that the minimum wage is less binding.
Doesn’t mean I think the minimum wage should be $22.
Doubled overall productivity does not call for, imply, nor legitimize doubled nominal incomes.
Nominal incomes are a function of the money supply, and the concomitant volume of spending. Specific types of nominal incomes, for example wages, are a function of the money supply, volume of spending, AND savings rates out of nominal revenues.
I thought I made this clear in the last post, yet here you are arguing as if those arguments weren’t even made. You even responded to them for crying out loud.
Daniel, I feel like you’re making two contradictory arguments but maybe you can clear it up for me.
First you say
I actually worry I am NOT representative of progressives. I don’t expect people to know the difference between MRPL and Y/L but I worry sometimes whether $22 passes the smell test for some people. I don’t think that crowd is too big, and they’re probably ignorant about all sorts of things… but sometimes I worry that it is.
Then later
You agree that if Y/L is growing MRPL probably is too, right?
So do you think MRPL is growing as well, just by a lesser rate than Y/L? So doesn’t Murphy’s argument still make sense, but just for a somewhat lower productivity than the one you both were originally talking about? In other words, shouldn’t there be a 1000 people somewhere, that you can hire for $10/hr, and still make a profit, given that it is a smaller profit than it would be if MRPL was equivalent to Y/L.
1. If we just assume a stable undifferentiated Cobb Douglas production technology and assume workers ought to earn their marginal return then it should grow at exactly the same rate, and we can call it a day (Y/L will be bigger but they should grow at the same rate).
2. #1 is wrong.
3. #1 can’t possibly be that wrong.
4. Of course I think Bob’s argument makes sense! I never said it didn’t make sense, did I? I linked to it favorably.
5. I think disputes on exactly what we think of #3 and disputes about how batshit crazy Warren is are the primary sources of disagreement here.
So he said $20 an hour, not ten. Look marginalism is sort of a crude modeling technique for determining how wages are set. $10? Ya, probably there’s more scope at $10. That’s Costco’s whole business model, right? And there are non-wage margins too.
Anyway, I think you are assuming that I disagree with Bob on more than I do, because Bob has chosen to present this as relatively confrontational.
What logical process do you use to draw that threshold? Exactly what makes advocating $10 per hour different to advocating some other arbitrary price, from say $10.50 per hour up to $100 per hour?
If you can’t explain how you come to that price amongst all the other prices they I put it that you don’t have a model, don’t have a workable theory and don’t really have an argument.
Well you should probably ask the people advocating it – the one’s actually arguing for this (i.e., not me), but I’d assume a sense of when the minimum wage turns from a benefit to a cost. Monopsony arguments do not suggest at all that the minimum wage will never reduce employment.
Labor is pretty much the exact opposite of a monopsony. There are BILLIONS of employers and laborers. Monopsony requires ONE buyer with many sellers.
His definition requires that every actor in the market has “some” monopsony AND monopoly power at all times. Which makes it meaningless.
What Warren is doing is just a usual negotiation trick.
To keep your demands sounding sensible bring forth also numbers that sound insane compared to your demand but could still be justified on whatever basis.
Well there is nothing bad in doing this per se, because maybe it is just putting things into perspective. Yet if the basis for the insane number is completely flawed, and you know about that but you still do it because you know most people will not get this anyway, then it is intentionally misleading which is called deception. Of course I can’t tell if she is aware of it or not. I guess rather not. At the end it is still misleading..
Although I guess Daniel would say “I would not put it that way!”
To keep your demands sounding sensible bring forth also numbers that sound insane compared to your demand but could still be justified on whatever basis.
I think this was spelled out by the protagonist in an episode of “I Love Lucy.”
I don’t know that series. This scene is funny though:
http://www.youtube.com/watch?v=8NPzLBSBzPI
Women and chocolate…
Here’s the argument though Bob. In 1968-the highwater mark for the minimum wage- the MW was keeping up with not just the rate of inflation but productivity growth.
So whether or not you think a small pizza shop-as Bob Roddis eluded to in the last post-could stay in business with such a high minimum wage, small businesses were somehow able to do it in 1968.
Australia currently has something like a $16 minimum wage and has a considerably lower unemployment rate than we do with the princely $7 MW.
I wonder if you can explain this actual empirical fact?
Simple – the minimum wage in Australia is not uniform, doesn’t apply to everyone, and doesn’t prohibit employers from paying no wage at all:
http://cafehayek.com/2013/03/australias-minimum-wage.html
Australia has a lot of highly subsidised industries that exist because of political clout, not profitability. Each year goes by we exist on a narrower industrial base (mostly mining and agriculture, which cannot move offshore). FWIW I think the minimum wage is only a small part of our problems, but the end effect is that certain types of business just can’t operate in Australia.
Fast food got a semi-exemption by hiring school kids, then tossing them out when they get too old. It has sort of become like a training ground for kids to prove they can actually work at something responsibly.
Pray to God the government never discovers that our software industry is thriving — they will “fix” it for us.
Which is the subject of this article
http://jppfaustralia.weebly.com/1/post/2013/03/western-australias-future-lies-in-secession.html
Ha ha, John Singleton… exactly what I would expect from him. What he says is true enough.
I live in a “working class” area (whatever that means) because houses were cheap when I needed a house. Once upon a time this area had a lot of factories. A few years back I followed some hastily painted cardboard signage to discover a man selling pairs of trousers for $5. He had limited stock and a rather arbitrary selection, but of course I purchased several pairs that fitted me badly, because, hey they were $5 each, good enough for going to the office. Only one person pulled me up about my ill-fitting trousers and I explained they were $5 a pair and he seemed quite accepting of this situation.
But at any rate, I got talking to the trouser vendor and could not help myself but ask how he got into the business of selling cheap trousers of random size, colour and style. I mean, you would be wondering wouldn’t you?
He told me he owned the factory and once all the boxes of left over stock were empty, the doors would close and that would be that. The trouser business had once been good to him, but would be no longer. He further pointed out that if I wanted a chair or a table or whatever else I could find around the place I should make an offer. I inquired about his industrial sewing machines (knowing an old lady who needed a sewing machine) and he declined. Apparently, those had already been sold and were awaiting shipment to some nearby Asian nation.
I guess in an era of globalization, it is inevitable that division of labour results in specialization. From an anti-war perspective it’s a good thing because if every nation depends closely on every other, war will be impossible (let’s ignore wars on abstract nouns for the sake of the story).
The problem is that while government is trying to deploy subsidies to save yesterday’s industry they are also bleeding the opportunity from tomorrow’s industry. Almost by definition, government is behind the curve. Don’t get me started on the money that went into the National Broadband Network (which remains incredibly popular, so I’m told).
By the way, West Australia is unlikely to secede, I don’t even know if it is possible, but on the subject as an Easterner what I would really like is to see West Australia invade the rest of Australia and govern it properly. They have a better timezone than the rest of us (being aligned with Beijing and only 1hr different to Japan, and none of that stupid Daylight Saving crap).
Austrailia is still more economically free than us. Price is determined by supply and demand. If we restrict demand for labor, how can the price rise? My boss straight up told us: “why should I give you a raise when I’ve got ten guys outside willing to do your job for less.”
High taxes on business, regulatory paperwork, obamacare, government created boom-bust cycles, litigation threats, the most dangerous thing you can do in this country is hire somebody. They giant economies of scale can handle that, but their smaller, nonexistent competition can’t. The real apples to apples comparison is California and Texas.