Minimum Wage tied to Consumer Price Index

[VoluntaryAmerican]

I live in the GREAT State of New Jersey,

Where Democrat lawmakers just tried to pass a $1.75 minimum wage increase to $8.50 an hour. But they also wanted to tie the minimum wage to the CPI.

Christie vetoed the bill, but then said he wants to raise it by only $1 over three years. Fat sellout.

Back to the point of this thread.

How harmful would this policy be tying the minimum wage to CPI?

I can only begin to imagine the horror... but I will leave the explanations to the more economically inclined.

 

[Zippyjuan]

Trying wages to price inflation helps feed that inflation- making it worse over time. Prices move up. Then wages have to be adjusted (for those currently receiving the minimum wage which is currently a small percent of hourly workers) up. This raises costs for employers. They can either reduce hours (and possibly workers) or pass along the costs in the form of higher prices. Higher prices means wages getting raised again. Repeat.

If prices go up but wages don't, then people cut back on spending on things which acts as a kind of break against more price rises (doesn't stop them but raising prices may reduce sales and thus revenue for a business so they are less willing to try to raise their prices if they fear losing sales).

It can be more complicated than this (such as price and wage elasticities- how easy or hard it is for an employer to raise or lower their prices and wages for example), but it covers the basics.

 

[smhbbag]

People making low-end wages haven't been paid according to their productivity in a long time. Every economic textbook glowingly describes how wages will track with a worker's productive capacity. The problem is that it just hasn't been true for a long while. That represents excess return for capital, while quite literally not paying labor according to what it is worth. Increasing the minimum wage will take some of that excess return going to capital and send it to labor.

However, what we really need is to fix the things that caused such excess return to go to capital in the first place.

http://cdn-media.nationaljournal.com/?controllerName=image&action=get&id=24338&width=314

This also shows up in income distribution: http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

The higher up the scale you go, the more you are actually paid for what you are worth. That difference hasn't always been there.

 

[VoluntaryAmerican]

People making low-end wages haven't been paid according to their productivity in a long time. Every economic textbook glowingly describes how wages will track with a worker's productive capacity. The problem is that it just hasn't been true for a long while. That represents excess return for capital, while quite literally not paying labor according to what it is worth. Increasing the minimum wage will take some of that excess return going to capital and send it to labor.

However, what we really need is to fix the things that caused such excess return to go to capital in the first place.

http://cdn-media.nationaljournal.com/?controllerName=image&action=get&id=24338&width=314

This also shows up in income distribution: http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

The higher up the scale you go, the more you are actually paid for what you are worth. That difference hasn't always been there.

I'm curious how this economist measured 'productivity'... I thought a workers productivity was measured by their wage?

 

[angelatc]

I'm curious how this economist measured 'productivity'... I thought a workers productivity was measured by their wage?

I think wages are more an indicator of skillset.

People making low-end wages haven't been paid according to their productivity in a long time.

Then we need to start paying them piece-work, and not by the hour.

 

[dannno]

I'm curious how this economist measured 'productivity'... I thought a workers productivity was measured by their wage?

Productivity would be the measure of increase in output for hiring that additional worker. Their output has to be greater than their wage in order for it to be worth it for the worker to be hired.

 

[GunnyFreedom]

Obviously there should be no minimum wage at all, therefore a "minimum wage tied to CPI" is also a terrible idea.

That said, the distortion is created by the creation of the minimum wage in the first place. Making it 'float' along with monetary value isn't going to do much more than it's doing right now to distort the economy.

I'm not saying it's a good idea obviously it's not. I'm just saying that 90% of the damage is already done by the existence of the minimum wage int he first place. The additional 5% of damage that tying it to the CPI will do just doesn't seem like an apocalyptic crisis.

Doesn't mean I would ever support the measure. It's just not really a big deal. I'm already geting whacked in the head with a hammer, do I really care whether it's a carpenter's hammer or a framing hammer?

 

[Zippyjuan]

People making low-end wages haven't been paid according to their productivity in a long time. Every economic textbook glowingly describes how wages will track with a worker's productive capacity. The problem is that it just hasn't been true for a long while. That represents excess return for capital, while quite literally not paying labor according to what it is worth. Increasing the minimum wage will take some of that excess return going to capital and send it to labor.

However, what we really need is to fix the things that caused such excess return to go to capital in the first place.

http://cdn-media.nationaljournal.com/?controllerName=image&action=get&id=24338&width=314

This also shows up in income distribution: http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

The higher up the scale you go, the more you are actually paid for what you are worth. That difference hasn't always been there.

The average worker productivity has grown significantly more than their wages have. Unless you are at the top. Their wages have increased much faster than productivity has.
http://www.motherjones.com/politics/2011/06/speed-up-american-workers-long-hours

Productivity has surged, but income and wages have stagnated for most Americans. If the median household income had kept pace with the economy since 1970, it would now be nearly $92,000, not $50,000.

Productivity tries to measure how much in dollar value one worker produces in a given time period.

http://www.investopedia.com/terms/l/labor-productivity.asp#axzz2LNhiMKFm

Definition of 'Labor Productivity'
A measurement of economic growth of a country. Labor productivity measures the amount of goods and services produced by one hour of labor. More specifically, labor productivity measures the amount of real GDP produced by an hour of labor. Growing labor productivity depends on three main factors: investment and saving in physical capital, new technology and human capital.

Investopedia explains 'Labor Productivity'
For example, suppose the real GDP of an economy is $10 trillion and the aggregate hours of labor in the country was 300 billion. The labor productivity would be $10 trillion divided by 300 billion, equaling about $33 per labor hour. Growth in this labor productivity number can usually be interpreted as improvements or rising standards of living in the country.

Read more: http://www.investopedia.com/terms/l/labor-productivity.asp#ixzz2LNhoS0OJ

 

[GunnyFreedom]

The average worker productivity has grown significantly more than their wages have. Unless you are at the top. Their wages have increased much faster than productivity has.

http://www.motherjones.com/politics/2011/06/speed-up-american-workers-long-hours

Make no mistake, this is BECAUSE of gov interference not despite it. Nevertheless, we should recognize this for the evil it is. One of the problems we have is that the 'right' likes to pretend that this issue either doesn't exist or it's great.

in any case, there are going to be a lot of people in for a big surprise at the Bema Seat.