Oren Levin-Waldman

  • 11 Mar 2016 3:21 PM | Mike Lillich (Administrator)

    By Oren M. Levin-Waldman


    (First published in the Yonkers Tribune, March 7, 2016)


    We hear a political class profess to care about the middle class, but the obvious question is just what does that mean? How is the middle class defined and can the definition for the nation fit all the states? This is a critical question because the term is often bandied around, but it isn’t clear what it means. Were we to look at workers in families, and define the middle class as these workers falling within certain parameters of family income, we would have a very different definition than if we were simply looking at these workers on the basis of their income alone. And yet, when we talk about growing income inequality, it is often taken as code for the disappearance of the middle class.


    The growth in wage inequality between say 1982 and 2013 is often considered to be problematic because it suggests that there may be fewer people in the middle of the wage distribution between the bottom and top quintiles. This, however, is not easily borne out by the data. In 1982, the average family income of full-time workers in the bottom quintile was $8908, and the average family income of full-time workers in the top quintile was $56,572, yielding a ratio of 6.35 percent. In 2013, the average family income of full-time workers in the bottom quintile was $24,376, and the average family income of full time workers was $217,277, yielding a ratio of 8.9. on this basis we would say that income inequality rose by 40.2 percent.


    Still, how do we define the middle class? In 1982, mean family income was $28,857 and in 2013 it was $94,433. That is the family income of those individuals according to the Current Population Survey (CPS) who were specifically working for wages. The mean family income of all families, however, was only $24,117 and $76,966 in 1982 and 2013 respectively.


    And yet, the percentage of those falling into this definition of the middle class is approximately 40 percent, and it does not really change between 1982 and 2013. The percentage of those individuals earning wages defined by family income between the 40th and 80th percentiles in 1982 was 49.2 percent and 48.7 percent in 2013. Can we really say that this decrease represents a shrinkage of the middle class?


    On the other hand, if our definition of the middle class are those with incomes between the 40th and 80th percentile, and it is only 40 percent of all families rather than those earning wages in families which is close to 49 percent, then we may indeed have something to worry about. We may indeed have a bell shape distribution in terms of wages, at least according to the CPS, but the middle is really not that big.


    Moreover, these definitions would surely vary from state to state. Consider New York State where the cost of living is higher than much of the rest of the nation. The mean family income of individuals earning wages was $29,507 in 1982 and $98,071 in 2013. But the median family income of those working for wages was $26,381 in 1982 and $73,000 in 2013. And the median family income for families was $20,374 in 1982 and $52,000 in 2013.


    This means that by the 40th to 80th percentile definition individuals earning wages were in families with incomes between $22,308 and $43,100 in 1982 and between $57,984 and $135,075 in 2013. And family incomes were otherwise between $16,292 and $37,088 in 1982 and between $39,193 and $113,469 in 2013. Again, about 40 percent fall within those parameters, and there was little change from 1982 to 2013. This would suggest that the claim that the middle class is disappearing is simply not true.


    What, then, is the point of all this? It might strike some as an overly technical discussion of what constitutes the middle class. By some accounts the 40-80 percentile definition is perhaps too broad. It certainly encompasses more people than those earning wages that were typical of the manufacturing sector more than 30 years ago. For those who believe that the answer to income inequality is to raise marginal taxes on incomes over $250,000, the middle class would indeed be defined as those in families earning up to $250,000. But would that be an accurate definition in New York City? And yet if we do define the middle class on the basis of the 40-80 percentile definition, then it isn’t hard to see some politicians calling for raising marginal taxes on lower incomes.


    Peripherally, the reader may want to conclude that there really is no objective definition of the middle class; rather it is all subjective. The data presented in this column is data I ran from the CPS on the computer. Which is to say, we all manipulate data, and politicians with a particular political agenda are no different. What is clear, although not everybody agrees that it is a real problem, is that inequality, particularly wage inequality rose between 1982 and 2013. This was largely because the incomes of those at the top rose at a higher rate relative to the incomes of those at the bottom. Meanwhile, the wages of those in the middle simply stagnated. And this happened because institutions like unions and the minimum wage that used to bolster wages and maintain the middle class were in decline.


  • 10 Feb 2016 11:52 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    (First published online in the Yonkers Tribune)


    As the Democratic Party chooses a nominee to run for president in the General Election, an interesting debate is occurring over the meaning of progressivism. Senator Bernie Sanders accuses former Secretary of State Hillary Clinton of not being progressive enough. She claims that she is progressive because she supports all the right “progressive” policies: universal healthcare, a higher minimum wage, college education, etc. And yet, the progressivism that she and Sanders appear to speak in the name of is really not the same as the progressivism of the Progressives of the early Twentieth Century.


    This raises the obvious question of just what are the implications of different definitions of progressivism for economic policy. Traditionally progressivism was a doctrine of efficiency. The early Progressives sought reform in local government on the grounds that it was corrupt. A system based on the old Jacksonian spoils system — to the victor goes the spoils — could not deliver services in an equitable fashion. In a city like New York residents could count on not receiving prompt services if they backed the wrong candidate.


    The early Progressives, however, were also elitist who sought to displace the ethnic minorities who were dominating municipal government. Born of the patrician classes they felt that it was their natural right to govern, and unless the rules of the game were changed they would never again have their chance. Therefore, they introduced reforms designed to restore themselves to their rightful place.


    First, they supported a civil service system in which workers would be hired on the basis of merit. Their merit would be based on their mastery of scientific principles of management. Second, they introduced at large city council elections in an effort to weaken the hold of ward leaders. And third, they introduced the concept of primary elections so that the voters themselves could choose candidates running for office. This was intended to weaken the control of party bosses making decisions in the old smoke filled rooms.


    They also pushed for ratification of the Seventeenth Amendment to the Constitution in 1913 that resulted in the popular selection of the U.S. Senate. Prior to this, the legislatures in each state simply chose two senators and sent them to Washington. While this along with primary elections were seen as steps in the greater direction of democracy, their real goal was the weakening of party bosses who either were not members of the right social class or had not attained the appropriate level of education.

    Of all these reforms, perhaps the most important one was the idea that principles of scientific management should be applied to public administration. The father of scientific principles of management, Frederick Winslow Taylor, sought to achieve greater efficiency in the new industrial production economy. Industrial production, often referred to as the Fordist Production Process named after Henry Ford, revolved around the assembly line.

    Taylor conducted time and motion studies at the Midvale Steel works in Midvale, Pennsylvania, and later at Bethlehem Steel, in an effort to determine what would make workers more productive and in the end more efficient. It was management’s responsibility to take “soldiering” workers, by which he meant lazy and second class, and turn them into first class workers. If management could not do this, it was a failure. Taylor also assumed that if workers became more productive, employers would reward them with higher wages. Although Taylor never specifically spoke of efficiency wages, he appeared to be introducing the concept because he certainly believed that one way to get product out of workers was to pay them more.


    Sidney Webb, also writing during the progressive period argued that a minimum wage would achieve greater efficiency because better paid workers would better maintain themselves, and in turn would be more productive, thereby adding to the efficiency of their employers. Moreover, higher wages would encourage their employers to invest in their human capital by offering them training so that they would be worth the higher wages.


    At the heart of progressivism was efficiency, whether it be the production of goods and services in the private economy or the delivery of services in the public sector. Today progressivism is more about social justice and achieving the “just society.” But social justice often turns on questions of redistribution, especially from the rich to the poor, as any number of “progressive” candidates today support over taxation of the wealthy to pay for more programs for the poor and maybe even the diminishing middle class. It is not clear, however, that the old Progressives would have recognized themselves in the New Progressivism.

    A

    ll of this raises a fascinating question: Could a Republican running for office supporting a higher minimum wage on the grounds that it is an efficiency wage claim to be a progressive, too? Would this represent a threat to the so-called social justice progressives? Neoclassical economics does stress that if a minimum wage does not result in the layoff of those workers whose value is less than the minimum, it will result in an increase in productivity among low-efficiency workers.


    The neoclassical economist often presents the efficiency side in terms of the anti-shirking wage. Workers paid a higher wage will avoid shirking on the job for fear that if they do they will lose their higher paying jobs and be forced to accept lower paying jobs. Moreover, because they won’t shirk, the employer can save money on monitoring costs. Granted, this is a more negative formulation of Webb’s argument, which we often refer to as the “Webb Effect,” but it does recognize the greater efficiency to be derived from higher wages, even higher wages that are legislated.


    Can our competing definitions of progressivism be reconciled? I have argued many times in this space that the path forward with regards to economic policy favorable to the middle class does not lie with redistributive policies. Rather the path lies with strong wage policies that through wage contour effects can lift, not only the wages of those at the bottom, but those in the middle as well. Although such an outcome will no doubt further the objectives of social justice, it would be in lines with the old progressive vision of the efficiency wage. Perhaps it is time to resurrect the efficiency wage argument as the best way to appeal to those middle class voters who remain.



  • 20 Oct 2015 8:25 AM | Deleted user

    Following the first Democratic presidential debate, one could not help but wonder what exactly is the party’s economic platform. At times it appeared that each candidate was attempting to outdo the other in terms of how much the wealthy should be taxed in order to pay for more programs for the poor and the middle class. Although each candidate professed his or her love for the middle class, it became apparent that nobody was really addressing their needs.

    Sure, they all talked about the need for higher minimum wages, but none of them seem to grasp the importance of the minimum wage for the overall health of the economy. The minimum wage is critical because it serves as a reference point for wages in specific industries — what we would term the low-wage industry — with potential spillover effects for others. In other words, if you were setting up a businesses in services, how would you know how much to pay your workers? You would most likely survey other businesses in the same industry to get a sense of what the prevailing wage is. But this is not what neoclassical theory tells us about how wages are set.

    In the theory of competitive markets, wage setting is fairly simple: wages are set at the point where the demand for workers intersects the supply of workers. The more workers there are the lower their wages will be because more workers are competing for fewer jobs. Therefore, they will lower their wages until their labor services are consumed, i.e. purchased by employers. The problem, however, is that one would think there is one labor market, when in reality there are multiple labor markets. The labor market where the minimum wage has its greatest influence is in the low-wage labor market, which also happens to be the lowest skilled market.

    In this labor market there is also an oversupply of low-skilled workers, which only drives their wages down further. Now for those industries that would like to pay as little as they can, which is also consistent with the basic tenets of micro-economics, these workers precisely because they have no real skill to offer are in no position to bargain for higher wages. A wage floor becomes necessary to ensure them a measure of monopoly power they otherwise would not have.

    This is precisely why collective bargaining was so important to the building of the middle class during the Twentieth Century. It gave workers a measure of monopoly power to bargain for higher wages. In other words, it gave workers voice. Moreover, factor worker at the end of the Nineteenth and beginning of the Twentieth centuries were considered to be no more skilled than low-wage service workers are today. The fundamental difference is that they were able unionize, and unions were able to afford them dignity in their work, while low-wage workers are not able to organize.

    The neoclassical economist, however, might respond in two ways: First, collective bargaining is no better than a wage floor, rather the effect is to artificially inflate wages where natural market forces would otherwise leave them. And second, a wage floor results in lower employment because workers are unable to accept jobs at lower wage rates. If wages are artificially inflated too much, employers might seek to substitute technology for workers. In other words, we are led to believe that wage setting according to the laws of supply and demand are really natural forces. 

    Perhaps the real issue is that there is no such thing as natural forces when it comes to wage determination. The so-called laws of supply and demand work when we have skilled workers, but when our economy is only leaving us with low- skilled workers, then employers need a little push from the state. The purpose of the minimum wage then is to afford workers a measure of monopoly power.

    In other words, heterodox economists don't disagree with the neoclassicals; they simply say so what? What heterodox economists realized was that workers and employers are not equal in their bargaining power. The neoclassical model always assumed that they were. Early heterodox economists, like John R. Commons, emphasized that the labor market imperfectly gave employers superior bargaining power relative to individual employees. There is an asymmetrical power imbalance between employers and their workers. Employers are wants traders while workers are needs traders.


    The employer has sufficient resources that s/he does not have to hire workers immediately. Rather, s/he can wait it out until the price of labor drops to a more favorable level. The worker, however, is a needs trader who, because s/he needs to eat, does not have the luxury of waiting it out until employers raise their wages. Therefore, they will take whatever job is available. This, of course, gives the employer considerable power over workers.  Because of this inequity in bargaining power, there really was nothing to prevent the economic coercion of workers.

    A wage floor, then, increases the bargaining power of those at the bottom rungs of the labor market. But for those employers who might like to obtain more effort from their workers in the general industries where minimum wage workers are found, they can now use the statutory minimum wage as a reference point for the wages they will pay. An increase in the minimum wage will no doubt affect the wage rates of those earning between $8-10 an hour or even more. Moreover, there is no reason to believe that there aren’t spillover effects into those industries paying more. After all, if the wages of low-skilled workers rise, is it unreasonable to expect that more skilled workers will similarly demand higher wages?

    Now we can cut to the chase. The minimum wage does not really refute the laws of supply and demand, but the idea that it is a reference point does expose as hollow the idea that wage setting is really a natural process. It then becomes even more curious why those politicians who talk about the power of corporations don’t seek to explain the operations of the market place in these terms. Those who really want to help the middle class should seize on this idea of the minimum wage as a reference point, whose increase can help many more. As wages increase, so too does purchasing power, which in turn leads to more demand for goods and services in the aggregate. This is ultimately what drives the economy; not more programs paid for by more taxes on the wealthy.

  • 07 Sep 2015 9:20 AM | Deleted user

    Another Labor day has come and despite all the tribute to the hard work of those who toil for wages, wage earners have been losing ground. Wage inequality continues to grow and we see more calls for higher state-level and local minimum wages. We may never resolve whether the minimum wage is a net positive or a net negative for the economy because the issue is steeped in politics, ideology, and competing economic models that are manipulated by different groups for their respective interests. And yet, these are all symptoms of a larger problem.

    Of course the larger issue is economic transformation and how we deal with it. Industrialization no doubt resulted in the growth of an unskilled class of workers earning barely subsistence wages and plutocrats holding substantial wealth. As labor unions addressed the asymmetrical power relations between management, coupled with public policy, we began to see the emergence of a middle class.

    Then with deindustrialization and capital mobility, middle class and unionized factory jobs were lost and replaced with low-skilled and low-paying service sector jobs. It isn’t clear that retail jobs require that much less skill than the lost manufacturing jobs. What is clear is that the problems of growing wage inequality and the decline of the middle class are really symptoms of the larger issue of the “commodification” of labor.

    Labor has become nothing more than a commodity. As commodities workers are interchangeable, disposable, and expendable. If commodities, what difference does it make if paid $20 an hour or $7.25? In neoclassical economics, firms simply seek the cheapest inputs. As a commodity, labor is simply an input. If commodities or inputs, workers, then, cease to be people. In the context of corporate decision making they have no feelings and certainly have no needs.

    Arguably the transformation of workers into commodities began with adoption of the Fordist mode of production — the placement of workers on an assembly line. This was work that could be done by anybody. The Fordist mentality, however, didn’t become obsolete with the disappearance of factory jobs. Rather we see it in low-wage and low skilled service jobs. Those who flip burgers in fast-food restaurants are the new assembly line workers.

    So long as we spout the myth that these jobs are low-skilled we as a society can feel good about treating those who work them as commodities not worth more than they currently receive. Surely they are not worth any further investment into their human capital. But then why would we invest in their human capital if they are not really human?

    In her tale of living as a low-wage worker in Nickel and Dimed , Barbara Ehrenreich tells of how these workers really engage in tedious, difficult, and humiliating work. These workers actually have more skills than we would like to believe. To call them unskilled workers, after all, is to further demean their labor. Because they are unskilled, they aren’t worth the wages they are receiving, let alone higher wages. Because we see them as unskilled workers, we don’t really see them as human beings that work because they need to.

    We add further insult to injury by talking about what makes for an efficient economy as though treating workers as people would be anything other than inimical to efficiency. Again, we as a society can feel good if we can couch opposition to human capital investment, higher minimum wages, and just shoring up the middle class in the larger public interest of efficiency.

    One wonders, however, how efficient it is when workers too poor to sustain themselves are simply unable to purchase goods and services. Has anybody wondered how it is that the term economic efficiency has come to be a mask of simple greed? Surely employers aren’t going to say in public discourse that they are opposed to higher minimum wages because it means they can keep less in profits for themselves.

    It does sound so much more civilized to talk about how inefficient it would be if low-skilled workers — especially if they are not primary earners — were to lose their jobs. After all, that would be contrary to the public interest. And yet, it is easier to make this argument because workers have been reduced to commodities.

    Now you might ask just what it is that we celebrate on Labor day? Of course, that would be a good question. Politicians will be quick to offer the standard bromides and platitudes. If we really want to have a meaningful Labor day, then we need a serious program for shoring up workers and the middle class. At a minimum, we need to be concerned about wages. That means strengthening traditional labor market institutions like unions and the minimum wage that served to bolster wages. It is because of their decline that wages have been stagnant for more than thirty years now.

    The real work is for us to change how we view workers and their labor. We need to stop viewing them as mere commodities and begin viewing them as people who indeed have human needs. Until we do that it will be difficult to have a serious policy discussion that extends beyond the platitudes characteristic of most political campaigns. And until we do that, we are simply making a mockery of Labor day.

    I am available for comment: (914) 629-6351

  • 26 Aug 2015 2:56 PM | Deleted user
    As the Dow Jones plummets amid concerns of a new recession on the horizon, there will naturally be those who argue that now is the wrong time to raise interest rates. Moreover, it will certainly be the wrong time to raise wages. But it is high wages that drive the economy, not lower interest rates. Higher wages after all, afford workers greater purchasing power, which in turn enables them to demand more goods and services in the aggregate.


    Over the last couple of years, many states have either raised their minimum wages or adopted them. One of the most interesting cases is that of Oregon. Between 2002 and 2014, the State of Oregon has had a steadily increasing minimum wage. In 2002 the minimum wage was $6.50 compared to the federal minimum wage of $5.15 an hour. In 2014, the state’s minimum wage was $9.10 an hour while the federal minimum wage remained at $7.25 an hour. Currently Oregon’s minimum wage is $9.25 an hour.


    The standard model of competitive markets holds that a rising minimum wage will lead to lower levels of employment. But recall the 2014 report of the Congressional Budget Office (CBO) that concluded that a rise in the minimum wage to $10.10, as was proposed by President Obama in his State of the Union address, would, despite resulting in as many as 500,000 fewer jobs, would on the whole greatly benefit the economy. As many as 16 million Americans were going to see their pay rise, and they would spend it in the economy.


    Oregon’s experience appears to bear this out. To understand what is happening and why the states may be a model for the nation we need to abandon the standard model of competitive markets and look at the minimum wage through the prism of wage contours. The concept of wage contours was developed by Harvard economist John Dunlop in the late 1950s, who would also serve as President Ford’s Secretary of Labor during the 1970s. Dunlop developed the concept to explain how a firm’s internal wage structure might be as much affected by external forces as internal ones.


    A wage contour was defined as a group of workers with similar characteristics working in similar industries and earning similar wages. For each group there would be a group of rates surrounding a key rate, and these group rates would be affected by changes in the key rate. Within an industry, the key rate was essentially any rate serving as the reference point for the industry. As key rates were specific to industries, they could also vary from industry to industry. Similarly the logic would apply to sectors.


    Therefore, if we understand the minimum wage through the prism of wage contours, then the statutory minimum wage is nothing more than a key rate for the low-wage sector. Low-wage workers working in an industry that pays slightly more than that key rate but are part of a group earning around that key rate who will also be affected by changes in that key rate.


    Data from the Current Population Survey (CPS) from 2002-2014 shows that the statutory minimum wage does have an impact on wages around it. Using this data, I constructed 10 contours. Beginning with the statutory minimum wage in each year the first contour included wages between the statutory minimum wage and 25 percent above. Each successive contour ran an additional 25 percent until a total of ten were created. At the national level median wages rose in each year the statutory minimum rose, and did not rise in years when the statutory minimum did not.


    In more concrete terms, between 2002 and 2006 when the minimum wage was $5.15 an hour, the median wages were $5.77 an hour in the first contour, $7.21 in the second, $9.13 in the third, and $11.54 in the fourth. The median wages in these contours did not increase until the minimum wage increased from 2007 to 2009. By 2009 when the federal minimum wage reached $7.25 an hour, the median wage in each contour was $$8.17, $10.00, $12.50 and $15.55 respectively. They have remained relatively unchanged since.


    In Oregon where the minimum wage was higher to begin with and was rising consistently each year, with only one or two exceptions, median wages also rose for the most part, although there were some exceptions. During the same initial four year period median wages rose from $7.22, $9.13, $11.54 and $14.42 respectively in 2002 to $8.41, $10.58, $12.98, and $16.83 respectively in 2006. By 2009, these median wages were $9.62, $11.54, $14.42, and $18.40 respectively. And in 2014, they were $10.00, $12.50, $15.38, $20.19 respectively.


    Meanwhile in Pennsylvania, where there has been no state set minimum wages, median wages have hovered around the national median wages. At the same time, unemployment, for the exception of when it peaked to 14.8 percent (according to the sample) in 2009 at the height of the Great Recession, it steadily decreased in Oregon. Between 2002 and 2008, unemployment fell from 8.8 percent to 5.6 percent. It then fell again from 14.8 percent in 2009 and 7.2 percent in 2014.


    If we consider the first four contours to be constitutive of the larger low-wage labor market — what we would define as the “effective” minimum wage population — it isn’t too difficult to see the similarity between Oregon and the conclusions of the CBO report. Moreover, that the minimum wage appears to result in wages rising is actually consistent with the preponderance of studies showing that there is a strong correlation between minimum wage increases and increases in average wages, especially at the lower tail of the distribution.


    Now I only presented what was happening in the first four contours; median wages following increases in the statutory minimum wage, were rising in the other contours too. On the whole, this would suggest that if we want to help those at the bottom of the distribution, the minimum wage may be an effective tool. That the median wages in other contours are also rising suggests that the larger middle class will also benefit.


    Contrary to the typical big government response that often comes from Washington advising that during a recession workers need more programs, they instead really need higher wages. It is rising wages that fuel the economy because increased purchasing power leads to increased aggregate demand for goods and services. If policymakers are looking for demonstration projects to support this position, they need look no further than the states. Oregon appears to be a good example.

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    See article originally appearing at: http://www.yonkerstribune.com/2015/08/public-policy-what-policymakers-can-learn-from-oregons-minimum-wage-by-oren-m-levin-waldman-ph-d

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    Oren Levin-Waldman is professor of public policy in the School for Public Affairs at Metropolitan College of New York (olevin-waldman@metropolitan.edu ) and author of several books on wage policy. They include the just published: Wage Policy, Income Distribution and Democratic Theory ( http://www.routledge.com/books/details/9780415779715/#reviews ); The Political Economy of the Living Wage: A Study of Four Cities (M.E. Sharpe 2005); and The Case of the Minimum Wage: Competing Policy Models (SUNY Press 2001). He is a researcher for the Employment Policy Research Network (EPRN), and some of his work can be found at http://www.employmentpolicy.org/people/oren-levin-waldman.

  • 27 Jul 2015 12:42 PM | Deleted user

    In his famous work, The Semisovereign People published more than 50 years ago, political scientist E.E. Schattschneider described politics as revolving around conflict. There were two sides to a conflict: those who were actively involved — the actors — and those sitting on the sidelines — the spectators.

    One set of actors would seek to socialize the conflict by turning spectators into actors. This, of course, would require convincing the spectators that the issue at hand was one that also affected them too. The other set of actors would seek to localize the conflict by trying to prevent the spectators from becoming actors. Now they would argue that the issue at hand was really a small — perhaps trivial — issue that does not really affect them. Rather it only affects a small and insignificant percentage of the population.

    If we look closely at this scenario, it isn’t hard to see how Schattachneider’s analogy applies to the minimum wage. Critics of the minimum wage have been arguing that because only 2 percent of the population earns the statutory minimum wage, and of that 2 percent most are only secondary earners, the minimum wage is really not that significant. Because most earners are secondary — meaning that they are not primary household supporters — they are in fact trivial.

    Worse, the use of the term “secondary” effectively represents a negative social construction of the target population, and one very much based on a particular societal ethos. Because they are unimportant, the minimum wage could not possibly be used as a positive policy tool. If they are unimportant or only contributors to a household rather than principal household supporters, then there is no need to raise their wages, especially if there may be negative employment consequences.

    They are now cast as being unworthy of wage increases on the grounds that such increases are not necessary to the maintenance of their families. This construction is very similar to the centuries old distinction between the “worthy” and “unworthy” poor. Those who were poor through no fault of their own — widows, the disabled, the elderly, and orphans — were considered to be worthy and were to be treated with compassion and charity. The unworthy were those who were simply lazy and lacked “moral character,” and thus were to be treated harshly The more poor people who can be categorized as unworthy, the less responsibility society has to care for their well-being.

    To a large extent, the appeal of the neoclassical ethic regarding the minimum wage clearly has something to do with how defenders of this ethos have been able to successfully localize the conflict. Remember only an insignificant few earn the statutory minimum wage. Similarly if low-wage workers in general can be conceived of as unworthy of higher wages because of their attributes and perceived failings, society then bears no responsibility for their low wages and is thus under no obligation to ensure that their wages rise above a certain level.

    Because, they are insignificant and indeed unworthy, the minimum wage is assumed to be inefficient precisely because it isn’t necessary. If the minimum wage has been primarily benefiting teenagers and not benefitting those working to support a family, there is obviously no logic to the minimum wage at all. It is simply irrelevant.

    It is pity that supporters of the minimum wage haven’t read Schattschneider, because if they did they would understood that instead of couching it as an anti-poverty measure, they would make an argument that according to political scientist Martin Gilens would be “targeting within universalism.” To target within universalism is to in short socialize the conflict by demonstrating how the issue of the minimum wage isn’t trivial, but is indeed a middle class issue.

    At the moment there is growing support for a $15.00 an hour minimum wage. More and more states and localities are legislating it. It would appear that the momentum is growing. And yet, supporters may still be missing an opportunity to miss an opportunity. They still couch it as an anti-poverty measure. Without a doubt, the poor will be assisted, but to maintain the momentum requires targeting within universalism. Why? Because policies like social security became widely popular precisely because they were couched as broadly middle class.

    Too much of progressive politics appear to be guided by Saul Alinsky’s Rules for Radicals where he advises the demonization of the opposition. I suppose that is one way of socializing conflict. Obviously those misguided economists who stand behind the neoclassical model don’t care about the poor, especially given that they are not poor themselves. Never mind that most progressives aren’t either. But this approach only goes so far because the neoclassical model isn’t evil; it is simply limited in its application.

    The support for the $15.00 an hour minimum wage could be stronger still if presented as a middle class issue. Ironically the New York City Chamber of Commerce acknowledged that the proposed $15.00 an hour minimum for fast food workers might actually be beneficial to the local economy because workers will have more to spend, which in turn will fuel more demands for goods and services.

    Now if we couple this dynamic with the recent findings from the Center for Labor Research and Education at the University of California at Berkeley that low wages cost U.S. taxpayers $152.8 billion a year for subsidies to low-wage workers, it should then be easy to socialize the conflict. In other words, the debate over the minimum wage should no longer be presented as the standard Democrats and liberals support and Republicans and conservatives oppose.

    Those who care about the middle class will socialize the conflict and indeed demonstrate why it will also benefit them. And those who don’t care about the middle class will continue to dig in as they always have into a pattern of localizing the conflict. What the new momentum for the $15.00 an hour minimum demonstrates is that the issue will not disappear and that supporters have an opportunity to make this a critical 2016 election issue, if they only can get their act together and make the right arguments.

    I am available for comment (914) 629-6351

  • 13 Jul 2015 10:30 AM | Deleted user

    The European deal to bail out Greece should not be cause for celebration, rather it should give us pause. Surely, the consequences would be worse if no bailout, but at what cost. In the typical top down approach, Greece must adopt even more austerity measures in exchange for loans, which only means that it is the typical worker who ultimately takes it on the chin. And yet, bailouts in general, like the U.S.’s rescue of the banks and AIG as well as auto manufacturers several years ago raise some serious questions about the meaning of risk in a market economy.

    One of the central tenets of competitive free markets is that investors are entitled to reap the rewards of their investments, and exorbitant ones too, because they assumed risk. Of course, the argument that because they understood that there was a risk means that they have no right to request governmental immunization from risk when those investments go sour is a very compelling one. After all, they can’t have it both ways. Lost in these debates, however, is the risk that workers assume when they simply take a job.

    The current wage labor system assumes that workers receive wages, and perhaps other negotiated benefits, in exchange for their labor. Moreover, it is assumed that they are entitled to no more. That their labor contributed to the success — the profitability — of a firm might have a moral point, is generally taken to be no more. Were it not for the efforts of workers, these companies would not be what they have become, their current need for a bailout notwithstanding.

    The human capital investment of workers has never been likened to the property rights that are enjoyed by the liquid capital investment of shareholders and investors. Many companies seeking bailouts have also been beneficiaries of community investment in the form of tax abatements intended to maintain plants. One of the most famous cases involving a public/private partnership between General Motors in the late 1970s and the City of Detroit is particularly instructive.

    GM had made it known to public officials that they would open two new Cadillac plants and create 6000 new jobs in Detroit if the city would undertake to acquire the land, clear it through the laws of eminent domain, and prepare it for construction. GM specifically wanted to locate its new plants in the Poletown section of the city, an ethnic neighborhood, and GM was also expecting tax abatements. Public officials feeling compelled to create jobs jumped at the chance, secured funding from Michigan and the federal government, and in the end bulldozed an entire community in the name of a public/private partnership aimed at achieving growth, or in the case of Detroit basic economic revitalization. This, of course, raised the question of whether such partnerships were tantamount to contracts whereby the company owed the community more than job creation.

    This very issue came to a fore in a Michigan state court when the community of Ypsilanti sued GM for breach of contract following a restructuring plan that would close 21 plants in the U.S. and Canada, including in Ypsilanti. The state court initially held in favor of the community on the grounds that a contract of sorts existed, especially given that the community offered financial assistance. The Appellate court in Michigan did not recognize this new type of public/private partnership as akin to a binding contract, that it would effectively trump GM’s property rights to dispose of its property as it would see fit. Still, there an implication that the workers made a human capital investment that perhaps was akin to a property right, and that the company would not be what it was were it not for that human capital investment.

    The point of this tale is that the current structure and arrangements of the free market economy would appear to be insufficient given the new global realities. We live in an integrated economy where the decisions of some affect the livelihoods of many. Workers never assumed the type of risk that investors did; after all, they would only be out of their jobs. But the poor investment decisions of the automakers begs the question: should the workers be made to suffer because of the decisions of their employers? If they are to assume that level of risk when they accept a job, should they not also reap some of the profits as well?

    In his classic An Inquiry into the Nature of The Wealth of Nations, Adam Smith observed that the wages of labor are higher for those engaged in unusually dirty work or in particularly dangerous work. Of course, Smith was referring to the type of work that nobody else would do precisely because it was dangerous. And yet, he was also alluding to the concept of risk; that the one who assumes risk is entitled to more. But given the changing nature of the economy, and particularly our evolving conceptions of what constitutes property, one wonders if it isn’t dangerous these days to accept a job, especially in the absence of knowledge about the financial health of, and decisions made by, that employer. Workers, in the end, are making a human capital investment and assuming a measure of risk.

    This, of course, is not to say that bailouts should not occur when in the public interest, but that the public interest, especially when taking into account the social wage and other aspects of social responsibility, should be the criterion. During the 1930s, various public programs and public works projects, along with an array of regulations, were promulgated in order to immunize us for risk. Indeed, the precedent created meant that it would be easier for those in need, including corporations, to request assistance. But now it is time to go further. The workers contribution must be recognized as being integral to the growth of his/her company. While liquid capital investment and limited liability are still hallmarks of a free market economy, human capital investment is just as essential for companies to prosper.

    Ultimately that means that workers in what might emerge as a new form of capitalism will need to have a measure of voice. To trust in corporate leadership as we have for so long is really to assume too much risk, because they aren’t only gambling with their own fortunes, but the fortunes of others. The new capitalism cannot simply be the government as bank of last resort, but must ultimately entail a measure of economic democracy. That is, labor has to have a seat at the table, rather than being viewed as the problem. It also means something else. When we see low-wage workers striking for a $15.00 an hour minimum wage, we need to place this in context of a global economy where CEO pay is on average 500 times the pay of the typical line worker. That high pay will of course be justified on the basis that this CEO assumes risk which the workers do not. But the risk this CEO assumes is with other people’s lives.

    I am available for comment: (914) 629-6351

  • 30 Jun 2015 10:09 AM | Deleted user

    Those who oppose increases in the minimum wage often argue the need for low-wage workers to get the necessary training and education so that they can be in a position to command higher wages. Otherwise, if they are earning low wages it is because they are not worth more, which is to say they offer nothing of any real value to their employers. Or is it the case that low-wage workers really lack the market power to bargain for something better?

    According to the neoclassical model in economics — the model of competitive markets — each worker receives the value of his or her marginal revenue product, which is the amount of increase in the output that results from an increase in say a unit of labor. If adding an additional worker results in a rise in total revenues, the firm’s output will rise as a result. An effective minimum wage, then either results in the layoff of those workers whose value is less than the minimum wage, or in an increase in productivity among low-efficiency workers.

    Also in competitive market where the new and technologically advanced is always replacing the old and obsolete, it is only a foregone conclusion that the wages of the unskilled will be forced down while the wages of the skilled will be driven up, thereby increasing the gap between the two. This view has led to what has been referred to as the “Washington Consensus” that maintains skill-biased technical change to be the source of inequality, stagnating wages for the average worker, and potentially long-term unemployment. This consensus has also maintained that the economy could grow through policies of deregulation and privatization intended to achieve greater efficiency. As for wage stagnation, the emphasis is on training and the upgrading of skills.

    If we parse this a bit, what we are really being told is that the market place really does not fail, or if it appears to it is only because of interventions, like wage floors, that create inefficiency. More fundamentally, if workers aren’t paid enough to support themselves, well then it is their own fault. The market place, after all, affords opportunity and it is up to us to take advantage of this opportunity when we can. If the natural market place is creating a two tiered economy with highly skilled and paid workers at the top and poorly skilled and paid workers at the bottom, then it is up to those at the bottom to improve themselves.

    The onus, in other words, is on the individual worker, not so-called economic forces beyond our control. As tempting as it is to attribute this view to a gross misreading of Adam Smith and his invisible hand — the notion that wealth will trickle down — the foundations of individualism and personal responsibility upon which this neoclassical view rests are deeply ingrained in the American political tradition. In other words, individualism, personal responsibility, and neoclassical economic assumptions are at the core of American identity.

    Of course to acknowledge as much is to also rationalize a status quo that maintains the power of some at the expense of others. If workers are responsible for their skills levels, then employers are not responsible for training and retraining their workers as the introduction of new technologies may require. If the emergence of the two-tiered economy is due to globalization, then an even larger burden is placed on the workers to obtain the necessary skills.

    These assumptions, however, may miss some fundamental points. First of all, wages really aren’t set by so-called natural forces, but by power relations that are asymmetrical. Even Adam Smith was aware of this problem. All our unskilled workers could get training, in which case the bar is raised but wages don’t increase because of the oversupply of newly trained workers. Second of all, the call for worker training misses the specific requirements that employers might have. Employers should be training their workers according to their own specific needs.

    And yet, employers have little incentive to train their workers if we as a society tell them that it is they the workers who need to obtain the necessary training. Moreover, employers don’t need to feel guilty about paying low wages because they know their workers will receive the necessary subsidies from taxpayers.

    There is nothing wrong with individualism and personal responsibility, but there is when these terms are used to rationalize a set of relationships that preserve the power of some at the expense of others and have the effect of denying true opportunity to all. The focus on training programs coming out of the Washington Consensus has proven to be little more than a charade that diverts attention from what we really need: the creation of jobs that pay decent wages.

    What the American economy truly needs is a commitment to the high-road — an economy where the emphasis is on high wages and investment in human capital — rather than the current low-road — low wages and no investment in human capital — which has long underpinned the Washington Consensus that effectively places the onus on the workers.

    It may be convenient to place the blame for our economic problems on others, and no doubt the pursuit of the low-road has enabled corporations to enrich themselves off the backs of their workers. The real question that we need to ask is just what has been the result of this economic strategy? Wage stagnation and growing income inequality? Is this a record that we as a nation should take pride in? When politicians taut the growth of the economy despite continued wage stagnation and rising income inequality, they are either oblivious or worse they just couldn’t care less.

    Our response to globalization and the growth of the low-skilled labor market should not be fewer regulations, but an active wage policy that serves to bolster the middle class so that it can continue to demand goods and services in the aggregate. The minimum wage and establishing an automatic adjustment mechanism would obviously be a good place to start. More fundamentally, however, we need to rethink our values as a society.

    Where we really need to begin is with the neoclassical model and its implications for policy which has conveniently been used to rationalize putative policies of doing nothing and maintaining inequitable power relations. Those who religiously hold to the model conveniently forget, or maybe not so conveniently, that economics is merely about explaining behavior; not about determining public policy.

    I am available for comment: (914) 629-6351

  • 01 Jun 2015 6:32 PM | Deleted user

    Recently Warren Buffet took to the pages of The Wall Street Journal and suggested that a better way to help the poor would be through the Earned Income Tax Credit (EITC); not an increase in the minimum wage. And yet, this is the same Warren Buffet who argues that tax rates for the wealthy should be increased because it is unfair that he as a multi-billionaire should be paying the same effective tax rates as his secretary. Is this a contradiction?

    Arguably the higher taxes that Buffet wants the wealthy to pay could perhaps be used to fund the EITC or its expansion. And yet, this version of progressivism is riddled with the type of hypocrisy that fuels what I referred to a few weeks ago as the New Welfare State-Service Sector Complex.

    The EITC, on the books since 1975, has effectively become a negative income tax for those earning around the minimum wage. In 2014, a family with one qualifying child would get a maximum credit of $3,305 while somebody with no qualifying children would get a credit of $496. One with two children the credit received $5,460, and with three children it was $6,143.

    A family gets the maximum credit if the earned income is between the minimum wage and some percentage above that. The effect of an EITC for say a single mother with three children earning the federal minimum wage is to have an income of $21,223, of which 28.9 percent is being paid by the government. As one’s income moves up the scale the EITC then begins to phase out. The same single mother with three children would be eligible for an EITC until her income reaches $46,997, and $52, 427 if she were married and filing jointly.

    Conservatives love this because it effectively rewards work without forcing employers to pay higher wages which they claim will have employment consequences for low-wage workers, especially those lacking in skills. But conservatives are the first to scream moral hazard when social programs are expanded. Public assistance, they claim, diminishes the incentive for workers to work and unemployment insurance results in unemployed workers being slow to search for new jobs.

    Moral hazard, however, cuts the other way too. With the EITC employers have no real incentive to pay their workers more because they know that their employees are effectively being subsidized by government. Meanwhile, employers like Walmart are known to help their workers sign up for the EITC. As for the progressivism of the wealthy paying higher tax rates? Buffet surely knows that very few will actually pay more in taxes because they can take advantage of enough tax deductions and loopholes to avoid paying their taxes.

    What about the bromide that low-wage workers aren’t worth more than the minimum wages they are currently getting, and to be required to pay them more is to spend more money without getting any real value in return? Here critics may actually have a point, but not for the reasons they typically claim. Their claim is that they simply lack skills or a level of education that would justify paying them a higher wage.

    Recall the efficiency argument that a minimum wage is really about getting workers to invest more of their effort into their jobs and thus increasing productivity. But what incentive does a low wage worker earning the minimum wage have to put more effort in for the employer if a good 40 percent of that person’s wages are coming from the government? Are they really not worth higher wages, or is it simply a nice rationalization of an existing status quo predicated on low wages that are effectively subsidized by taxpayers?

    When Warren Buffet talks about the EITC being preferable to the minimum wage, he is effectively saying that a low-wage strategy bolstered by public subsidies is really a sound economic policy. In other words, paying low wages is perfectly fine because low-wage workers can make up the difference through public subsidies. And because the wealthy, even with higher tax rates, will nonetheless find ways to evade paying taxes, the burden of paying these subsidies will fall on the middle class.

    This ought to give us pause. Why should we want a low-wage economy? Shouldn’t the ideal be a high wage economy? The standard economic model that claims that there are disemployment effects to an increase in the minimum wage, and more so for the poor who are disproportionately low-skilled workers, also maintains the Buffet argument to be the epitome of rationality. But wouldn’t it be more rational to pay workers enough that they don’t need these subsidies and then reduce these subsidies and the taxes that support them accordingly?

    The real fallacy in Buffet’s argument is the assumption that the minimum wage is really about the poor. The minimum wage is really about labor-management relations and ultimately shoring up the middle class. As I have said in this space many times before, those earning the statutory minimum wage is not as important as those earning around the minimum wage. If the minimum wage is a reference point for the larger low-wage labor market, then the effects of an increase are considerably larger.

    The Congressional Budget Office acknowledged as much last year when it said that even if 500,000 jobs were potentially lost due to an increase in the minimum wage to $10.10 an hour, the economy as a whole would still be better off. More than 16 million workers would see their pay go up and their higher wages would enable them to spend more in the economy, which over time would result in growth. The 16 million who would earn more is obviously more than those who earn the statutory minimum wage, and includes those earning in wage ranges above who would see their wages rise too.

    All this brings us back to Buffet’s apparent contradiction between higher tax rates for the wealthy and a preference for the EITC over the minimum wage. Or is it really a contradiction? Perhaps the real question is just whose interests does Warren Buffet speak for? Certainly not the low-wage worker, and probably not even the middle class. He represents the interests of corporate America that enjoys higher profits through the payment of low wages that are effectively subsidized by the American taxpayer. A preference for the EITC merely speaks to the rising social costs imposed by low-wage employers.

    I am available for comment: (914) 629-6351

  • 05 May 2015 12:51 PM | Deleted user

    The nation has been witness to more and more day long strikes for a minimum wage of $15.00 an hour. The Economic Policy Institute in Washington is calling for a $12.00 hour minimum by 2020 as an essential means of raising America’s pay. Of course, by 2020 the value of the federal minimum wage will have only eroded more. Still, that there are more and more calls for a higher minimum wage suggests an issue that politicians in the next national election really cannot afford to ignore.

    These calls for higher wages would appear to be a logical response to several different forces. The first is that wages in America, especially for the middle class, have been stagnant for more than three decades. The second is that median household income has declined. The third is that there has been growing wage inequality with more wealth being concentrated at the top. The fourth has been the disappearance of the manufacturing sector, which was a source of middle class jobs. Replacing these jobs has been the low-wage service sector. The fifth has been that the minimum wage labor market has grown in size and is no longer defined by teenagers or so-called secondary earners.

    Critics have long pointed to the fact that the minimum wage is really not an effective anti-poverty measure because most minimum wage workers are in families that aren’t poor and those who are tend to be out of the labor force. And yet, herein lies the crux of the problem when it comes to the current minimum wage debate.

    When talking about the minimum wage a distinction has to be made between low-wage workers and those living in poverty. Here the critics are right. A minimum wage isn't going to help those in poverty, and it is for this reason that the anti- poverty focus of those arguing for minimum wage increases is problematic and misplaced.

    The minimum wage historically was never viewed as an anti-poverty issue, but as a labor management issue. Of course, it was intended to assist low-skilled workers who either weren’t members of a union or lacked the bargaining power that more skilled workers had. We conveniently forget that the better paid manufacturing sector, before being unionized, also was considered to be unskilled work at one time.

    The issue isn’t that low-wage workers lack skill; it is that they lack bargaining power, and as a labor-management issue the minimum wage was intended to correct for the asymmetrical power imbalances in the labor market. In the early days of the minimum wage critics would talk about how the minimum wage violates a worker’s ability to negotiate his or her pay and working conditions. What ability? The only market power that workers had was to either accept or reject the low wages they were being offered. Even Adam Smith recognized that employers had the market power to collude in order to suppress wages.

    Again, the question is why? Here the answer is simple. Free marketeers argue that wage rates are set by market forces that are allegedly natural. But they are really set by power dynamics that appear to masquerade as natural forces. In the language of economics employers are wants traders while workers are needs traders. An employer does not need to hire workers, but can hold off until the price of labor drops to the point that they are willing to purchase it. A worker, however, does not have that luxury and because he or she needs to eat is forced to accept whatever wage is offered. The claim that workers are not worth a wage higher than the current minimum is merely a rationalization of a set of power dynamics that result in workers getting low wages while the companies that pay them hoard massive profits at their expense.

    In my last column, I noted that paying workers costs the nation $152.8 billion in public support for working families. As much as consumers enjoy purchasing cheap goods, they are nonetheless paying for those cheap goods through higher taxes to provide those supports. In short, all of us are subsidizing the profits of companies at the expense of workers.

    Meanwhile, more and more studies, including from the Congressional Budget Office, note that raising the minimum wage would be a tremendous boost to the economy because it would benefit more workers than simply those who earn the statutory minimum wage. I have also been making that argument for several years now by pointing to the wage contour effects. Here is where it is critical that we recognize that the minimum wage is more about workers’ wages and really has little to do with poverty. Yes, it will assist those in poverty to the extent that a rising tide lifts all boats. But that isn’t the point.

    We should assume that employers have long recognized the wage contour effects of the minimum wage. Otherwise, why would an issue that only affects 2 percent of the labor market evoke such strong emotion and often be such a contentious issue of political debate? One would think that if it really is such an insignificant segment of the labor market, nobody would care. But it is always so heated. Clearly, it affects a larger segment of the labor market.

    Most polls show that 65-70 percent of Americans favor raising the minimum wage. Is this a statistic that politicians on either side of the political aisle can really afford to ignore? And yet, to couch this issue as just another type of anti-poverty issue ultimately undermines the importance of the issue, not least of which because our American culture of individualism and equality of opportunity has long stigmatized the poor.

    Politicians who claim to speak in the name of the middle class need to begin with the minimum wage and explain why it will through wage contour effects boost the incomes of the middle class, arrest wage stagnation, reduce the wage gap between the top and the bottom, and ultimately drive the economy through the increased aggregate demand for goods and services that greater purchasing power affords,.

    It really should be a no-brainer that the issue is non-partisan. The Democrat that continues to only talk about the minimum wage as an anti-poverty measure has to be assumed to be the typical limousine liberal who perhaps doesn’t really care about the middle class. Or at least it would be fair to say that this person has no real understanding of the middle class. But the Republican who continues to offer up the same bromides that a higher minimum wage will cost jobs or it raises prices in the face of data showing the huge social costs, only demonstrates that his or her true allegiance is to corporate America. Now you will know whom not to vote for.

    I am available for comment: (914) 629-6351

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