Monday, October 31, 2011

No, Max.

And that's why a real discussion about the minimum wage laws needs grounding in definitions.

These aren't managers. These are better than the dead-enders who end up getting wages worth more than they.

"If you have attributes that employers value, whether you're a surgeon or basketball player, the rules of micro-economic, or macro-economic analysis probably don't affect you. If you are Kobe Bryant, you're lucky. There is only one of you."

My point here is, the demand for low-skill labour is restricted by minimum wage jobs. Because of the way economics is taught--and, today, barely taught--we look at the supply and demand curves for labour, and decide that miniscule rents for labour barely rise above the level of insult Where surgeons and Kobe are making millions, yet rarely, if ever, do we dis-aggregate the market for labour to take into account that there are people with few skills, people with many skills, and people with rare skills. Which are worth more?

People with few skills are, in my opinion, worth less than either people with more skills, or people with rare skills. Garth Brooks is a better entertainer than I. That is a rare skill. I believe that I may be a better businessman than Mr. Brooks. I think I may have more skills. But his rare skill is worth more to the market than my mundane skills.

I believe that the average OWS protester may have fewer skills than I. Maybe, only a single skill, that isn't in demand. Is it right that I earn more than this OWS occupier and less than Garth Brooks?

I have no problem with that.

Remember, the argument about minimum wages isn't about the range of abilities and skills provided by the labour market. The question posited is one of, given the lowest wages offered in the market, do efforts to provide for minimum levels of income meet the criterion set out by policy makers? That is, to provide workers with a minimum level of income that allows the worker to have sufficient income to provide for himself a "living wage." A wage that provides enough sufficiency, that a housing payment, a car payment, a clothing payment, medical care and child care, are all within his reach.

I suggest that efforts to mandate a “living wage” deposits a larger, increasing number of people into a caste that is unemployable, given the constraints of the “minimum wage” model, itself.

These are all, true, concerns of those living within poverty.

If you are truly living in poverty, you know that your chances of catching a break are very limited. You don’t have the personal hygiene. You are missing teeth. You don’t have the wardrobe. Your diet is poor, your complexion is sallow, and your affect is weak. You may only be able to barely read and write. You lack basic math skills. You have problems learning. You have emotional problems that limit your ability to listen to criticism without getting angry. People laugh at you. You aren’t attractive.

So, the catch is: these efforts to provide for a certain level of “human dignity” does little to lift the truly poor in our communities, and does more for the second to the bottom tiers, and third to the bottom tiers of our lower-income citizens. Minimum wages tend to lock-out, perpetually, the lowest of income earners.

"The thing that's lost in most discussions of the Labour Curve is the meaning of the curve, from point-to-point. The aggregate Supply Curve describes the number of persons willing to work at a buck, as well as those willing to work for two-bucks, then three-bucks, etc. The amount of aggregate wages paid is the sum of those wages."

In micro-economics, the curve describes something most of us tend to ignore. At a certain point in wages, no one is interested in providing himself as an employee. Labour is not induced to provision. The demand for labour can price itself so low, that there are no takers.

At the earliest point of entry to the market for labour, the first entrant may offer his labour for a modest rate. Let's take a buck an hour. It is at that point that the micro-economist begins looking at the entry into the market, those who are willing to provide labour. The Supply Curve for Labour isn't just a rhetorical, or an hypothetical. There are really people out there, willing to work for a buck, two bucks. This is an empirical.

Even though the number of people willing to enter the Labour Market at low rates is small, the curve (which does, typically in the texts, seems to be a straight line) views the additional increases in the number of willing workers as increasing as the wages increase. (The reason why the line is straight is that we're typically looking at static analysis. Once we employ dynamic analysis, the curves to actually curve. And as wage rates increase, the number of workers available for employ increase--at some point, very quickly.)

For an economist, the area of interest, when it comes to wages, is the area “under the curve.” Two things are happening. First, we find the first person who is willing to accept the lowest paid position. This is our Alpha. His wage rate, multiplied by the number of people willing to accept this wage rate determines the total value of income, at that level of wage.

Then, we go to Beta, the next level of income that induces another—or more—workers to enter the workforce. This expands the area under the curve, and the value of A(n) + B(n) equals the value of wages under the curve. As we move upward, this process is continually repeated. It is the aggregate of Workers(n) at the point of equilibrium that determines the total income for employees at or below the equilibrium level. It is my assertion, that the equilibrium level of employment, without a minimum wage, is both larger than that required by a minimum wage, but would make an employer more likely to hire someone with certain deficiencies, having been able to avoid paying second tier employees higher wages than they deserve. The amount of income produced by second tier workers (who don’t deserve higher wages) is smaller than the amount of benefit that would accrue to the lowest level of wage earners, and would increase the overall net income of whatever political boundaries one would impose; whether city, county, state or nation.

These are all, true, concerns of those living within poverty. But the catch is, these efforts do little to lift the truly poor in our communities, and do more for the second to the bottom tiers, and third to the bottom tiers of our lower-income citizens. Minimum wages tend to lock-out, perpetually, the lowest of income earners.

"The thing that's lost in most discussions of the Labour Curve, is the meaning of the curve, from point-to-point. The aggregate Supply Curve describes the number of persons willing to work at a buck, as well as those willing to work for two-bucks, then three-bucks, etc. The amount of aggregate wages paid is the sum of those wages."

In micro-economics, the curve describes something most of us tend to ignore. At a certain point in wages, no one is interested in providing himself as an employee. Labour is not induced to provision. The demand for labour can price itself so low, that there are no takers.

"What determines the shape of the Supply Curve for Labour? Is it simply the level of wages? Or, are there other determinants that affect the shape of the curve? Do you need to work for someone else? Do you have a choice?"

At the earliest point of entry to the market for labour, the first entrant may offer his labour for a modest rate. Let's take, a buck an hour. It is at that point that the micro-economist begins looking at the entry into the market, those who are willing to provide labour. The Supply Curve for Labour isn't just a rhetorical, or an hypothetical. There are really people out there, willing to work for a buck, two bucks. This is empirical.

Even though the number of people willing to enter the Labour Market at low rates is small, the curve (which does, typically in the texts, seem to be a straight line) views the additional increases in the number of willing workers as increasing as the wage increase. (The reason why the line is straight, is that we're typically looking at static analysis. Once we employ dynamic analysis, the curves to actually curve. And as wage rates increase, the number of workers available for employ increase--at some point, very quickly.)

What determines the shape of the curve? It depends upon choice. It is true that the higher the wage, the greater the willingness to enter the labour pool. My personal rule has always been, “if you’re willing to pay me more, and require me to do less, then, I’ll work for you” isn’t made up. That’s my rule. The pool of training and experience I carry—Human Capital—is larger than a lot of people. Clearly not as rare as Kobe. His Human Capital is something that only God can provide. I will never be as good a golfer as Tiger. (Ahem.)

But, in the market of all available skills, and all available experiences, devotion to work, and traits of character, I am not in the lowest percentiles.
May I suggest that I am, at least, average?

The discussion over the minimum-wage laws tend to be totally misguided, since they tend to impose values over the preferences of those at the lowest level of economic ability that they are, and will continue to be, mismatched to the abilities, of those on the lowest economic tiers.

The Supply of Labour Curve is an aggregation of values, determined by the individual, of the willingness of individuals to choose to offer their labour for a wage. At each level of increase, the Marginal Increase in Wage, the number of persons entering the market at that wage is added to the number of persons who were willing to enter the market at lower wages, which allows you to determine the total wages of workers. As the increment of Wage increases, so to do the number of persons willing to work at this, new, higher wage. Added together, this sum of increased marginal wages (multiplied by the number of workers at each point) creates a total income level for those who are willing to work at, or below, the Market Equilibrium wage level. What we see is, that without the minimum wage, total wages of those at the equilibrium level will be greater than the total of wages with an imposed Minimum Wage. Total income will increase. More people will be better off.

National Income will rise. Fewer people will live in poverty.

And more importantly, those with few job skills will be given the opportunity to gain Human Capital. Without a Federal Jobs Program, or Guaranteed Student Loans.

Who is better off without the Minimum Wage? We all are. But the minimum wage isn’t about making life better for anyone.

Is it?

5 comments:

MAX Redline said...

Interesting. I'm unsure whether to feel honored, or perturbed.

While I have no quarrel with your view of the minimum wage - which in Oregon is now some 2.5 times what I paid myself when I began my first enterprise some 40 years ago - I note that wage-scale is by no means the only yard-stick by which many employees measure themselves.

Many managers - particularly those in government and finance - are poor performers, handsomely paid. A current example in finance is Jon Corazine: Jon Corzine is many things: Erudite, down to earth, and well-meaning being chief among them, people who know him tell me. But is he a good businessman? Not even close, these same people openly admit. In fact, based on his long years in the financial business, from CEO of Goldman Sachs to his current job as chief executive of the failing MF Global, Corzine is proof positive that on Wall Street you don’t have to be very good at your job to get paid a lot of money.

So as I noted previously, wages, in and of themselves, don't provide an accurate measure of worth, or value. This is where the other measures come into play.

For some of us, it amounts to answering a question: can I provide comfortably for my family, without sacrificing my skills and self-respect? If not, then I need to look at other options.

The minimum wage does nothing to address any of these issues; it is, moreover, counter-productive in that it dissuades people from enhancing their skills or pursuing other options, while devaluing the skills of others. At its present rate of expansion in Oregon, minimum-wage burger-flippers will, in the next couple of decades, be making $40k a year or more.

Of course, that burger they produce will cost you $15 or more.

Steve Adams said...

Two thoughts:

One, while this is an interesting analysis the use of logic in this area only highlights the futility of the argument. Leftists don't get logic.

Two, the poor commenter above as just score a goal against his own team. It is now only a matter of time before Cain and the rest will be called to the carpet for not supporting a living wage of $40k per year per person - funded by the 1%

Ten Mile Island said...

Steve--

(Laughed out loud.)
.

Ten Mile Island said...

Max--

I feel your perturbation.

Wages, in and of themselves, have never been a criteria that determined whether or not an individual would take a certain job. We rank the things in our lives that are important to us; family, friends, Church, neighbors, country, football team.

When the Statists interfere with our own, personal selection of value, what have become known as "bubbles" occur. Distortions in the market, imposed exongenously, without the preferences of those being imposed upon given a care. This is known, colloquially, as tyranny.

We've become so used, or accustomed, to the tyranny of the Left, that attempts to reduce this tyranny is called names, like reactionary, racist, sexist or logical.

Remember, these little windows can only hold so many characters, so I decided to copy and paste my original response to the new post window.

Thanks for your continued support.And your comments. It's why I write.
.

MAX Redline said...

It's why I write

And you do it well, which is why you're one of my daily reads.

Wages, in and of themselves, have never been a criteria that determined whether or not an individual would take a certain job. We rank the things in our lives that are important to us; family, friends, Church, neighbors, country, football team.

That's what I was trying to get to - the many aspects that ultimately decide what makes employment in a specific endeavor worthwhile over the long term.