Scattered thoughts on the minimum wage and income inequality

Last updated on: December 8, 2013 at 10:50 pm by Jane the Actuary

Scattered thoughts on the minimum wage and income inequality 2013-12-08T22:50:00-06:00 Jane the Actuary

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So the minimum wage and income inequality are in the news again.

First of all, I’m really getting tired of the assertion that “One of Henry Ford’s great insights as a businessman was to realise that in order to create a mass market for his automobiles, he had to pay his workers sufficient to buy his products,” as Jeremy Warner at the Telegraph, and countless others, assert. This is debunked by Tim Worstall at Forbes, in an article in which he provides the background that Henry Ford had a serious turnover problem, which the $5 wage remedied. The wage was also conditioned on good citizenship — that is, among other things, immigrants learning English. Not mentioned in Worstall’s article (and please excuse my not finding a proper source for this) is the reason for the high turnover: as long as Ford paid roughly the same as similar jobs, his repetitive assembly-line jobs were simply less desirable than a job which involved a variety of tasks during the day. He needed to pay more than other employers to make up for the monotony of the work.

The reality is that no business could imagine that paying its own workers a higher wage, and having that wage be partially directed back in the form of purchasing the company’s products, would be a recipe for business success. It simply doesn’t make sense, to imagine that, if I sell widgets, I could build a successful business if my only customers were my own employees.

Second, there’s Obama’s recent speech on income inequality. Here are his solutions:

“Push a growth agenda” — which is pretty vague.

Corporate tax reform: close loopholes and end “incentives to ship jobs overseas” to broaden the base, and lower rates plus “use some of the money we save to create good jobs rebuilding our roads and our bridges and our airports, and all the infrastructure our businesses need.” Of course, those must be a large number of loopholes, if this funds both tax reductions and extra spending.

Growing exports — everyone’s dream. “Streamlining regulations that are outdated or unnecessary or too costly” (has Obama ever taken any action in this regard?). A fantasy budget with implied spending increases.

Education: Race to the Top, blah, blah. Reining in college costs, inclulding a special announcement on working with college presidents and non-profits to help more low-income students attend and succeed in collge. Increased technical education for the non-college-bound.

Preschool for all (based on the fantasy that this makes a different, vs. the stubborn facts that it doesn’t).

“Empowering workers” by making it easier for unions to organize. Paycheck Fairness Act and Employment Non-Discrimination Act.

And — ta da! — raising the minimum wage because “there’s no solid evidence that a higher minimum wage costs jobs.” And he cites some exceptional companies that pay their service workers well — such as REI — because “they recognize that paying a decent wage actually helps their bottom line, reduces turnover.” (Great applause line for the audience, regardless of the math.)

Special targeted programs for “the communities and workers that have been hit hardest by economic change and the Great Recession.” Something new called “Promise Zones” which he says are “not handouts, but a hand up.” (How much you wanna bet they’re handouts?)

Plus a promise of a future announcement of help for the long-term unemployed.

And a goal to “revamp retirement” in an unspecified way, to “encourage private savings and shore up the promise of Social Security for future generations.”

A throwaway line for Congress to extend the already-extended unemployment benefits.

A plug for the ACA.

And that’s pretty much it. Ultimately, there’s not much of substance and, really, the number of teasers is a bit disconcerting: Promise Zones? A new program to bring poor kids to college? No wonder the news articles all focused on the minimum wage increase support — there’s not much else there.

Certainly, underlying this is a simplistic view of the past, in which the post-war economic growth was due to strong unions and a harmonious “social compact,” not the devastation of the rest of the world. But the solutions he trots out are simply the usual Democratic prescriptions of more government spending, not a serious grappling with the issues.

Here’s an idea: how about cutting immigration of low-skilled workers, to reduce the competition that low-skilled Americans face for jobs?

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