Oren Levin-Waldman

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  • 23 Oct 2014 11:31 AM | Deleted user

    Over the last three decades along with the various structural changes that have taken place in the economy, we can say that the face of the low-wage labor market has also changed. It used to be that the low-wage labor market characterized by unskilled labor as perhaps reflected by the percentage of high-school dropouts was extremely high.


    Three decades later, however, we find that increasingly the ranks of the low-wage labor market are filled with high school graduates, some college graduates and professional graduates.


    Editor's Note: For more, read the original article in the LaborPress.org. He is a regular contributor.

    Historically, we tended to define the low-wage market as those earning the minimum wage. At the same time, the minimum wage tended to be pegged at around 50% of average annual hourly earnings. A fair definition of the low-wage labor market, then, would be those earning between the statutory minimum wage and 50 percent of average annual earnings, or those we can say earn the effective minimum wage.

    In 1982 the minimum wage was $3.35 an hour and 50 percent of average annual hourly earnings was $3.73. In 2013, the minimum wage was $7.25 and 50 percent of average annual hourly earnings was $12.70. In 1982 only 3.3 percent of full-time workers between 18 and 75 fell into the category of effective minimum wage earners. But by 2013, the number of workers who could be said to be effective minimum wage earners was 16.4 percent, an increase of 397 percent.


    Many of the arguments against the minimum wage rest on the assumption that only a small fraction of the labor market earns it. But if close to a fifth of the adult labor market is earning an effective minimum wage, we as a society can no longer afford to write this labor market off as inconsequential.


    Opponents also claim that most minimum wage earners are teenagers or secondary earners. Again, during this period we see some interesting changes. Consider that in 1982 the largest number of effective minimum wage earners, 27.3 percent, were between 18 and 24. By 2013, the number of effective minimum wage earners between 18 and 24 had dropped 49.5 percent to only 13,8 percent of the age distribution. Those between 35 and 44 increased 20.7 percent and those between 45-54 increased 40.1 percent from 18.4 and 15.0 percent in 1982 respectively to 22.2 and 21.1 percent in 2013 respectively.


    Females still comprise a majority of the effective minimum wage labor market, but the number of men in the effective minimum wage population increased 33.3 percent from 35.7 percent in 1982 to 46.6 percent in 2013. The most significant change in the composition of the low-wage labor market, however, appears to have been in educational attainment. In 1982, 75 percent of effective minimum wage earners had not completed high school. By 2013, only 16.7 percent of effective minimum wage earners had not completed high school, a decrease of 77.7 percent. And in 1982 only 2.7 percent of effective minimum wage earners had a high school diploma, whereas 37.9 percent of them had a high school diploma in 2013, an increase of 1303.7 percent.


    Actually, the percentage of high school graduates who were effective minimum wage earners was 44.6 percent in 1992, representing an increase of 1551.9 percent. In 1982, those with Associates, BA and Professional degrees didn’t even register among effective minimum wage earners. By 1992 they did and between 1992 and 2013, there were even significant increases among them as well. The largest increase was among those with Associates degrees from 4.9 percent to 10.6 percent, an increase of 116.3 percent. Effective minimum wage earners who were college graduates also increased 57.7 percent from 7.8 percent to 12 percent. There was even a 33.3 percent increase in effective minimum wage earners with professional degrees from 2.1 percent to 2.8 percent.


    It is true that the largest number of effective minimum wage earners have no more than a high school diploma, which may say something about skills levels. At the same time the structural changes in the economy have also meant that those who previously might have gone from high school into middle class jobs in factories, were no longer able to do that. Effective minimum wage earners in Manufacturing decreased 41.9 percent from 20.3 percent in 1982 to 11.8 percent in 2013. The number of effective minimum wage earners working as service workers in private households increased 144.3 percent. Overall manufacturing decreased 48.3 percent and overall service workers increased by 200 percent.


    Arguably the changes we are seeing are a function of larger global forces in which higher paying jobs have disappeared and been replaced by lower paying ones. But this might well be the point. When the issue of low-wage work can no longer be dismissed as a matter of workers either lacking skills or being "youth" workers, we as a society need to wake up and recognize that we have a serious problem. That high school graduates who once could go into middle class work in the factories now find that their only option is low-wage work speaks volumes to a breakdown in a public-private partnership that assumed if the private sector created jobs, the public sector would produced a prepared workforce for those jobs.


    There is no question that we can blame the poor quality educational system for some of this. But the larger issue is that our priorities as a nation have also shifted in large part because the institutions that used to lobby for policies beneficial to the middle class, have all but disappeared. The biggest constituency for middle class policy was organized labor, but labor union membership has been in sharp decline. Some of the largest structural changes in the economy occurred during the 1980s, which is when the nation saw the largest decline in union membership along with stagnation of the minimum wage.


    It should come as no surprise, then, that had the minimum wage kept up, the percentage of effective minimum wage earners would still be infinitesimal. Perhaps we need to recognize that it isn’t a matter of globalization on the one hand and institutions on the other. Rather the so-called natural processes which have been occurring under the guise of globalization have been exacerbated by the decline of institutions. The response to globalization, then, isn’t to eliminate so-called barriers to free markets like labor market institutions, but to strengthen them. It is time to end the blame game and work together to end low-wage work and restore the middle class.


  • 21 Oct 2014 2:01 PM | Deleted user

    The standard minimum wage model that predicts that increases in the minimum wage will result in lower employment rests on the assumption that workers are nothing more than factors of production. As factors of production, they are simply inanimate objects that are easily interchangeable, either with other similar inanimate objects or more technologically advanced ones.

    So even if an increase in the minimum wage were to result in a substitution of machinery for labor, it is still a substitution of one type of inanimate object for another.

    That low wages may result in workers living in poverty cannot be a consideration because the value-free assumptions underpinning the model cannot see workers as people who really may have needs. But aside from the obvious subsistence needs that we all have, there is the issue of wages sufficient to develop capabilities. A minimum wage that enables workers to live above poverty is one that enables them to develop their capabilities.


    Editor's Note: For more, read the original article in the LaborPress.org. He is a regular contributor.


    Economist and philosopher Amartya Sen has argued that poverty deprives individuals of their capabilities. Poverty, he argues, should be viewed as a deprivation of basic capabilities rather than merely low income. When Sen talks about a capability, he means the alternative combinations of functioning that are feasible for a person. A capability, then, is a kind of freedom. Therefore, individual advantage needs to be addressed in terms of the capability that a person has, which he defines as the substantive freedom, i.e. the ability to make choices with regards to the type of life that person seeks to live.

    A minimum wage that better enables workers to be autonomous also enables them to better develop their capabilities. But this would of course imply that workers are people with feelings rather than inanimate objects. For employers to view their workers as people with real needs rather than factors of production might just put a drag on efficiency, as that might bring emotion back into consideration.

    It is much easier to terminate workers when they are simply inanimate objects and no consideration has to be given to their needs as human beings. It is also easier to be concerned with the profit motive when employers similarly don’t have to reflect that it comes at a cost to others. On the contrary, profits are the result of investments made, which in the case of labor are investments into the factors of production.

    One can only wonder why we persist in viewing our workforce in these terms. On the one hand, it is no doubt easier when employers can be dispassionate as they marshal the factors of production necessary to achieve profits. On the other hand, however, it may be that employers really have no interest in policies that would enable workers to develop their capabilities because that would simply destroy the status quo in which they enjoy power and privilege.

    By maintaining a wage structure that prevents workers from developing their capabilities, employers are also able to maintain the current power structure whereby employers have human agency and freedom and workers do not. In other words, low-wage workers who are unable to develop their capabilities have to know their place. And their place in the new global economy would appear to be the “new” industrial reserve army of labor.

    Karl Marx referred to the requisite number of workers  who had to be unemployed as the industrial reserve army of labor. Because they were unemployed they would serve to discipline those who were employed. The employed would behave out of fear that they would become members of the industrial reserve army if they did not. But the low-wage labor market might as well be viewed as the “new” industrial reserve army of labor because it serves the same function.

    In all fairness to the standard model there is a version of the efficiency wage theory that holds employers will pay their workers a hire wage to reduce the workers’ likelihood of shirking. Because they are receiving a higher wage they are less likely to shirk for fear that they will be fired and then have to accept another job at a lower wage. Now that workers are less likely to shirk, their employers can save money on monitoring and surveillance. Follow the logic of this version of efficiency wage theory, the new industrial reserve army of labor is essential.

    One company that pays its workers an efficiency wage because it believes its workers will be happier, healthier, and more productive is Costco. And yet, a recent Bloomberg editorial suggested that such an approach at Wal-Mart and other low-wage retailers would be a bad idea because efficiency in the long-term would only decline. That is, if everybody adopted the benefits of paying a higher wage, the benefits of paying more would disappear and the quality of customer care in places like Costco would similarly decline.

    Still, this is a myopic way of looking at it. If the quality of customer care, which is generally low, were to rise to higher minimum standard, that would be an improvement for us all. Moreover, it wouldn’t preclude others from paying an even higher efficiency wage for even greater productivity. And in the process steps would be taken to further the development of workers’ capabilities.

    The development of individual capabilities is not about being altruistic, but about enabling individuals to be autonomous, which itself is a prerequisite for the survival of democracy. When workers are deprived of their capabilities because they are effectively impoverished from low pay, democratic society ceases to become democratic, as exemplified by the types of policies that favor the interests of the very wealthy over the middle class and the poor.

    In the end, we as a society have a choice to make. Do we want to be one where individuals have fully developed capabilities? Or do we want to be one where increasingly more find themselves among the ranks of the “new” industrial reserve army of labor?

  • 10 Oct 2014 12:44 PM | Deleted user

    The standard minimum wage model that predicts that increases in the minimum wage will result in lower employment rests on the assumption that workers are nothing more than factors of production. As factors of production, they are simply inanimate objects that are easily interchangeable, either with other similar inanimate objects or more technologically advanced ones. So even if an increase in the minimum wage were to result in a substitution of machinery for labor, it is still a substitution of one type of inanimate object for another.

    That low wages may result in workers living in poverty cannot be a consideration because the value-free assumptions underpinning the model cannot see workers as people who really may have needs. But aside from the obvious subsistence needs that we all have, there is the issue of wages sufficient to develop capabilities. A minimum wage that enables workers to live above poverty is one that enables them to develop their capabilities.

    Economist and philosopher Amartya Sen has argued that poverty deprives individuals of their capabilities. Poverty, he argues, should be viewed as a deprivation of basic capabilities rather than merely low income. When Sen talks about a capability, he means the alternative combinations of functioning that are feasible for a person. A capability, then, is a kind of freedom. Therefore, individual advantage needs to be addressed in terms of the capability that a person has, which he defines as the substantive freedom, i.e. the ability to make choices with regards to the type of life that person seeks to live.

    A minimum wage that better enables workers to be autonomous also enables them to better develop their capabilities. But this would of course imply that workers are people with feelings rather than inanimate objects. For employers to view their workers as people with real needs rather than factors of production might just put a drag on efficiency, as that might bring emotion back into consideration.

    It is much easier to terminate workers when they are simply inanimate objects and no consideration has to be given to their needs as human beings. It is also easier to be concerned with the profit motive when employers similarly don’t have to reflect that it comes at a cost to others. On the contrary, profits are the result of investments made, which in the case of labor are investments into the factors of production.

    One can only wonder why we persist in viewing our workforce in these terms. On the one hand, it is no doubt easier when employers can be dispassionate as they marshal the factors of production necessary to achieve profits. On the other hand, however, it may be that employers really have no interest in policies that would enable workers to develop their capabilities because that would simply destroy the status quo in which they enjoy power and privilege.

    By maintaining a wage structure that prevents workers from developing their capabilities, employers are also able to maintain the current power structure whereby employers have human agency and freedom and workers do not. In other words, low-wage workers who are unable to develop their capabilities have to know their place. And their place in the new global economy would appear to be the “new” industrial reserve army of labor.

    Karl Marx referred to the requisite number of workers who had to be unemployed as the industrial reserve army of labor. Because they were unemployed they would serve to discipline those who were employed. The employed would behave out of fear that they would become members of the industrial reserve army if they did not. But the low-wage labor market might as well be viewed as the “new” industrial reserve army of labor because it serves the same function.

    In all fairness to the standard model there is a version of the efficiency wage theory that holds employers will pay their workers a hire wage to reduce the workers’ likelihood of shirking. Because they are receiving a higher wage they are less likely to shirk for fear that they will be fired and then have to accept another job at a lower wage. Now that workers are less likely to shirk, their employers can save money on monitoring and surveillance. Follow the logic of this version of efficiency wage theory, the new industrial reserve army of labor is essential.

    One company that pays its workers an efficiency wage because it believes its workers will be happier, healthier, and more productive is Costco. And yet, a recent Bloomberg editorial suggested that such an approach at Wal-Mart and other low-wage retailers would be a bad idea because efficiency in the long-term would only decline. That is, if everybody adopted the benefits of paying a higher wage, the benefits of paying more would disappear and the quality of customer care in places like Costco would similarly decline.

    Still, this is a myopic way of looking at it. If the quality of customer care, which is generally low, were to rise to higher minimum standard, that would be an improvement for us all. Moreover, it wouldn’t preclude others from paying an even higher efficiency wage for even greater productivity. And in the process steps would be taken to further the development of workers’ capabilities.

    The development of individual capabilities is not about being altruistic, but about enabling individuals to be autonomous, which itself is a prerequisite for the survival of democracy. When workers are deprived of their capabilities because they are effectively impoverished from low pay, democratic society ceases to become democratic, as exemplified by the types of policies that favor the interests of the very wealthy over the middle class and the poor.

    In the end, we as a society have a choice to make. Do we want to be one where individuals have fully developed capabilities? Or do we want to be one where increasingly more find themselves among the ranks of the “new” industrial reserve army of labor?

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

  • 26 Sep 2014 10:00 AM | Deleted user

    Among the topics that often rise to the top of the debate in most national elections is just what the proper relationship is between the states and the national government. In other words, has federal authority usurped state sovereignty, or is more federal authority needed because the states are untrustworthy guardians of individuals’ rights? It would appear that the many states that have taken it upon themselves to either adopt their own minimum wages or raise existing ones over the federal have only rekindled the traditional states’ rights v. national authority debate, albeit it in a different form.


    Editor's Note: For more, read the original article in the LaborPress.org. He is a regular contributor.

    This form, however, appears to have an ironic twist. It is usually conservatives who argue for states rights as a way of opposing national authority that finds expression in federal policies and unfunded mandates. It is usually liberals that push for national authority over states’ rights on the grounds that a minimum set of uniform standards are required across the country, and that the states cannot be trusted. The same liberals who argue for national authority also push for a higher federal minimum wage. And the same conservatives pushing for a return to states’ rights also tend to oppose increases in the minimum wage.

    One might think that liberals would oppose state efforts to advance the minimum wage in favor of a higher federal minimum wage. But the failure of Congress to increase the minimum wage and maintain it in lines with the inflation rate has apparently left them with little choice. Because the federal government isn’t maintaining the minimum wage, increasingly more states have come to the conclusion that they need to take matters into their own hands to protect the economic security of their citizens.

    Those who argue the virtues of returning to traditional federalism, or what some might refer to as the new federalism, where the states assume more responsibility for domestic policy will no doubt hold these measures as sign of progress. They might point out that it is in the states where interesting policy innovations are occurring, and that in lines with Louis Brandeis’s statement that the states were the “laboratories of democracy,” policy initiatives should always be tried at the state level first. That is because if successful at the state level, it is ripe to expand it to the federal level.

    At the same time, this argument might carry with it a double-edged sword. Currently, at least twenty-two states have minimum wages higher than the federal minimum wage, and data showing that there have been no disemployment effects undefined the loss of jobs to states with lower minimum wages undefined would certainly strengthen the argument for raising the federal minimum wage so as to maintain uniformity across the nation.

    The lack of uniformity, however, especially in the absence of data to the contrary, only strengthens the arguments of minimum wage opponents who argue that minimum wage differentials between the states encourages firms to leave high wage states for lower ones. This only furthers the race to the bottom as states compete with one another to create low-wage jobs. It should be recalled that it was precisely because of wage differentials between the states that proponents of the initial minimum wage in 1938 made their case for uniform standards. Southern states where wages were lower than in the North opposed the minimum wage, and Northern states hoped that a uniform minimum would stop industry and jobs from moving down South.

    Optimally we should raise the federal minimum wage and it should either be pegged to the inflation rate or some type of productivity index. The goal should be to ensure a minimum level of living standards for all. But it should also be a goal to arrest wage stagnation. It is important to note that median household income dropped from around $54,000 in 2010 to $51,939 in 2013. Although it has started to creep back up in the last few months, it is below where it was. Of course, some will say this is due to the aftereffects of the Great Recession and the persistence of long-term unemployment. But it may have more to do with the absence of a serious national wage policy.

    When we consider that following the end of the Great Recession in 2009 there was what was referred to as the “jobless” recovery where there was still growth, this recession excuse does not quite wash. On the contrary, there was growth in productivity, which means that gains should have been shared among workers in the form of higher wages. Obviously, employers needed a legislative push, and a rise in the national minimum wage might well have been that push. There is every reason to believe that had there not been a deterioration in labor market institutions like unions and the minimum wage over the last three decades, that wages too would have kept up.

    Of course, opponents of the minimum wage that derive economic benefit and corresponding political advantage from maintaining low wages have an interest in opposing any increase in the federal minimum wage for precisely that reason. And even if states raise their own, it will not have the same effect of a raise in the federal.

    None of this is to say that states should not continue to raise their own minimum wage if it helps their citizens. It is certainly understandable that liberals will champion these efforts if it is the best they can get. But they aren’t enough. Conservatives opposed to the minimum wage are served by this minimum wage new federalism, even if by default. Nevertheless, it would be a great disservice to the interests of the national economy if the minimum wage specifically, and wage policy generally, were to be lost in the language of new federalism and states’ rights.

  • 18 Sep 2014 4:47 PM | Deleted user

    In his blockbuster book Capital in the Twenty-First Century Thomas Piketty observes that the history of the distribution of wealth has always been deeply political and cannot be reduced to so-called neutral economic mechanisms. But much of this has been obscured by the economic discipline’s “childish passion for mathematics,” an obsession that has only served to create the appearance of being scientific, without having to answer the far more complex question posed by the real world in which we live. The same critique, however, applies to the minimum wage debate.


    Click for the article at LaborPress.org


    When it comes to the minimum wage debate, the question that we as a society should be asking is why has there been a tendency to defer to the neoclassical economics model that holds that increases in the minimum wage will lower employment. We know that there are other models that predict otherwise. The efficiency wage model holds that increasing the minimum wage will lead to greater productivity and efficiency. The macroeconomic model holds that higher wages increase purchasing power which over time will lead to economic growth.  And yet, the neoclassical model has become the reigning orthodoxy. Why?

    Arguably the case could be made that we have a long history going back to the Progressive period in American history of deferring to expertise. Policy decisions based on scientific models, we assume, must be correct. Therefore, if the model says that minimum wage increases will lead to lower employment, and these are “scientifically” trained experts telling us this, it must be true. Unfortunately, that does not explain why we defer to this model when others are just as valid. It also does not explain why we continue to persist in believing this model when a wealth of empirical evidence, grounded in equally scientific methodology, says otherwise.

    If nothing else, neoclassical economics has succeeded in making efficiency the unquestioned objective of economic theory, largely because there is a parallel with utilitarianism in liberal thought. Utilitarianism assumes the greatest happiness will be achieved when the greatest number of people are happy, or in economic terms are made better off. That is, they will only be happy when the greatest benefit occurs with the least amount of pain, which similarly translates to the least cost. Applied to the minimum wage, we all will be better off when the greatest number of people are employed, even if the wages they earn are too little to live on.

    The first reason the orthodoxy is so entrenched is because of our commitment to a particular definition of efficiency. Why this definition? Because the experts said so. The second reason has to do with the composition of the minimum wage labor market itself. Because only a small fraction of the labor market actually earns the statutory minimum wage, the potential benefits are presumed to be so small that they could not possibly offset the more likely larger costs.

    Of course, this misses the obvious reality that the minimum wage labor market is considerably larger when constructed in terms of who earns the “effective” minimum wage undefined various wage ranges around the statutory minimum. If a larger number of people are affected by the issue, not only might there be a greater sense of political urgency, but the reigning understanding of efficiency may be called into question. Is the economy really efficient when a sizeable number of workers have to rely on various publically provided subsidies to subsist?  

    A third reason for the prevalence of the orthodoxy has to do with ideology and a general anti-labor bias built into economics models generally. Because the economics profession produces what society takes for economic knowledge, it has assumed the role of determining society’s vision of how the economy works. The reigning model of competitive markets assumes unemployment to be caused by high and rigid wages. And because labor market institutions like the minimum wage serve to raise wages, they obviously are forces driving up unemployment.

    Competitive market theory is also anti-labor because it treats labor as a commodity. Workers are simply inputs in the production process, and as such have no personalities of their own. Therefore, as competitive market theory assumes a full employment economy, the minimum wage orthodoxy is not only a product of those assumptions, but it nicely serves the interests of those who believe that all government interventions, whatever their form, greatly undermine free market ideology and free choice.

    A fourth reason the orthodoxy may be so entrenched is because there is simply a crisis in vision, as Piketty allude to. Modern economic thought simply lacks a sense of how society ought to be ordered and how modern scientific analysis ought to be put in the service of that vision. Because of this we often miss the potential for the minimum wage to serve other policy interests, such as making for a  more just and democratic society precisely because it may help restore the middle class.  

    Lastly, the orthodoxy may be so entrenched because it well serves a set of economic interests. Various studies in the political science literature have found that when it comes to the minimum wage, members of Congress tend to be far more responsive to the wealthy than they are to the poor or even the middle class. To the extent that this is true, minimum wage advocates do nobody any favors when they present it as an anti-poverty measure. Moreover, as long as elections in this country continue to be financed through private donations, especially soft money, then it is a foregone conclusion that the model that best serves those interests will continue to reign supreme.

    At the end of the day, the minimum wage orthodoxy predicated on competitive market theory reigns supreme because it politically serves wealthy interests to whom policymakers are more responsive to because they also happen to be in the top 1 percent of the income distribution. It would appear that minimum wage policy, along with other social policies, has fallen victim to the polarization of the U.S. that is intimately tied to the growth in income inequality. On the one hand, we cannot raise the minimum wage because legislative bodies being more responsive to the wealthy is a consequence of growing income inequality. But on the other hand, a higher minimum wage that helps the middle class through its ripple effects will reduce the gap between the top and the bottom. It is for this reason that the minimum wage has to be marketed as a middle class issues, whose benefits can be said to extend to all.

  • 09 Sep 2014 9:17 AM | Deleted user
    The minimum wage has long been thought of as an issue that only affects the low-wage labor market, i.e. the working poor. Broader construction of the minimum wage population, however, shows that not to be the case. When the minimum wage labor market is defined as the effective minimum wage population undefined those who earn around the minimum rather than those who earn the statutory minimum undefined the proportion earning an effective minimum wage is considerably larger. Moreover, if we understand that an increase in the statutory minimum wage can ripple upwards through the wage distribution, we can then understand that the minimum wage is ultimately about helping the middle class.

     

    As much as bolstering the middle class is important because increased purchasing power will boost the economy by increasing aggregate demand for goods and services, the middle class argument needs to be the centerpiece of a political strategy to increase the minimum wage. For too long the debate surrounding the minimum wage has manifested itself in a sideshow between those arguing the adverse employment consequences specifically for teenagers and those arguing the benefits to specifically the poor. Herein lies the problem. Politically speaking it is a non-issue.

     

    A focus on teenage employment consequences only feeds the myth that only a small segment of the labor market really derives benefit. Moreover, because this small segment are teenagers, they are secondary earners, meaning that they are not primary earners. In other words, what they earn is “funny” money. Therefore, society should not risk higher teenage employment just so teenagers can have more to spend on frivolous things. At the same time, to argue the benefits that accrue to the poor is unfortunately a weak argument because of society’s tendency to stigmatize the poor.

    Editor's Note: For more, read the original article in the Yonker's Tribune. He is a regular contributor.

     

  • 01 Sep 2014 9:57 AM | Deleted user

    The minimum wage has long been thought of as an issue that only affects the low-wage labor market, i.e. the working poor. Broader construction of the minimum wage population, however, shows that not to be the case. When the minimum wage labor market is defined as the effective minimum wage population undefined those who earn around the minimum rather than those who earn the statutory minimum undefined the proportion earning an effective minimum wage is considerably larger.

    Moreover, if we understand that an increase in the statutory minimum wage can ripple upwards through the wage distribution, we can then understand that the minimum wage is ultimately about helping the middle class.

    As much as bolstering the middle class is important because increased purchasing power will boost the economy by increasing aggregate demand for goods and services, the middle class argument needs to be the centerpiece of a political strategy to increase the minimum wage. For too long the debate surrounding the minimum wage has manifested itself in a side show between those arguing the adverse employment consequences specifically for teenagers and those arguing the benefits to specifically the poor. Herein lies the problem. Politically speaking it is a non-issue.

     

    Editor's Note: For more, read the original article in the Labor Press. He is a regular contributor. Visit his archive of Labor Press articles here.
  • 29 Jul 2014 2:52 PM | Oren Levin-Waldman (Administrator)

    Those who oppose regulations of any type, including mandates to pay workers a specified minimum wage, often invoke the language of free markets. In a market economy, the argument goes, individuals should be free to enter into transactions, whether it be for the purchase of goods and services or labor services.

    Not only does interference in these transactions violate one’s liberty, but it undermines market efficiency because it may create obstacles to individuals making choices which could result in the full utilization of resources. And yet, one wonders whether this isn’t really a skewed understanding of what markets are all about.
     
    Those who invoke free markets also tout Adam Smith as the patron saint of free and unfettered markets. If they only read Smith, they would know all too well that markets are not about the unfettered pursuit of self-interests or selfish interests even if that pursuit causes harm to others. And if they only read Smith, they would understand that Smith’s political economy was really about creating a just moral order. Yes, Smith assumes that government interference in the market could foul things up, but he was specifically responding to the heavy hand of mercantilism, especially with regards to England’s relationship to its colonies. But Smith also assumes that individual behavior unchecked will lead to the tyranny of irrational passion over reason.

    http://laborpress.org/sectors/municipal-labor/4177-the-meaning-of-markets Reprint from © 2014 Laborpress

    The regulator, or course, would be the market place and its invisible hand. Through competition in the marketplace, individuals would pursue their self-interests based on their own rational decisions of how best to achieve a good life. With true competition, producers would not exploit consumers because the invisible hand would effectively punish those who tried. After all, we would simply buy from the competitor. Smith even talks about the need for government to ensure competition by breaking up monopoly when necessary. Why? Because monopolies distort markets by effectively taking advantage of and exploiting those with less power then them.
     
    Big corporations that crowd out smaller mom and pop operations means that consumers over time will be restricted in their ability to make free choices. The absence of competition because of these types of monopolies mean that consumers don’t really have the freedom in markets that Smith wanted them to have. These same types of monopolies also mean that workers don’t have the ability to bargain over wage rates because there is no real competition between employers to purchase workers’ labor services. In fact, large corporations like Walmart often use their market power undefined monopoly power undefined to dictate wage rates to their suppliers. Remember because the small mom and pop shops have been driven out of business, big sellers who are often the primary sellers of goods are in a position to dictate terms to suppliers. Otherwise, their goods don’t get sold.
     
    The problem, however, is that to talk about these monopolies and markets in the same breath is really a contradiction in terms. Letting corporations exploit consumers and workers is not about free markets, but markets out of control. Smith recognized that employers would collude with one another to drive down wage rates. In so doing, he was tacitly acknowledging that employers possessed superior market power to set wage rates and that workers, unless they possessed some unusual skills or talents, really did not have the ability to freely negotiate their wages. He even states in The Wealth of Nations that it is reasonable to assume that workers will organize themselves into unions in order to attain a measure of monopoly power to counteract the monopoly power of employers.
     
    All of this, then, returns us to the meaning of markets. A market is nothing but an institutional setting in which individuals and/or groups can engage in transactions, i.e. purchase and sell goods and services. But it is also a legal framework where rules of fair play are established and enforced. In order to have a market, Smith understood that government would be needed to facilitate market operations. Government would be necessary to maintain an infrastructure undefined then roads, bridges and seaports and now roads, bridges, seaports, airports, train lines, and mass communication networks undefined that facilitate transactions.
     
    Government would also be needed for the administration of justice. One cannot sell what one does not own. Therefore property rights have to be protected and contracts enforced, and this requires government to maintain courts. To this we would add the maintenance of an educational system so that individuals can be taught the necessary skills to function effectively in the market place
     
    So what, then, is the meaning of markets? Markets are about cooperation. Through markets we work together to achieve socially optimal outcomes. For Smith, the invisible hand of competition in the market place would lead to an opulent society in which all could prosper. But this meant that government would have to break up monopolies in order to prevent the type of exploitation that comes with the absence of competition.
     
    Therefore, it should follow that if markets are about cooperation then it is also necessary for government to enforce fair labor laws, including the maintenance of a good minimum wage, in order to prevent the exploitation of workers. It doesn’t take rocket science to figure out that if workers aren’t paid liveable wages that enable them to purchase goods and services, then nobody really prospers because the economy will only contract. If a real market is about cooperation so that we can all work together to obtain socially optimal outcomes, then workers have to be part of that equation too. In other words, real markets are not only about producers and managers, they are about everybody. They need to be inclusive and that requires maintaining labor market institutions.

     

  • 09 Jul 2014 2:53 PM | Oren Levin-Waldman (Administrator)

    Amidst the debate over whether the minimum wage really helps those at the bottom or whether it causes more unemployment, we often lose sight of why it was needed in the first place. Today the debate over the minimum wage has become a side show between those who argue that it results in disemployment and those who argue that it benefits the poor.


    We conveniently forget that the Fair Labor Standards Act of 1938, which established the federal minimum wage, was about redressing power imbalances between workers and managers, reducing industrial strife and ensuring stability, and also about economic development. The minimum wage, in short, was about stabilizing labor-management relations.


    Early reformers pushing for a minimum wage at the beginning of the Twentieth Century were concerned about the power imbalance between employers and employees. Employers possessed monopoly power and were able to set wages, and workers whose only options were to work in sweat-shops had no choice but to accept the low wages that were being offered. Typically this imbalance was rationalized with the constitutional language of “liberty of contract,” meaning that both employers and employees could freely negotiate the terms of employment. But the only liberty of contract that workers really had was take it or leave it. In short, workers were being exploited by unscrupulous employers who could also rationalize their exploitation on the basis that workers were no longer people but factors of production, and that the language of economics dictated that they minimize costs at the same time they maximize profit.


    This behavior gave rise to the parasitic industry argument that employers that paid low wages were parasites on the community who only imposed larger social costs on the community. The minimum wage was seen as a way to give these workers, who weren’t covered by collective bargaining agreements, a degree of monopoly power. Prior to the FLSA, various state minimum wage measures only applied to women. Men were joining unions, but women weren’t allowed to join, and low wages, it was believed, only drove them into prostitution which at the time was still legal in many places. A minimum wage would then protect their morals too. But there were those reformers who saw the minimum wage, as it was originally a woman’s wage, as a larger family wage. Employers would then opt to hire their husbands instead at a wage sufficient to support them and their families.


    The minimum wage was also about efficiency and achieving economic development. English Economist Sidney Webb argued that people who are paid better are able to work harder because they have greater energy, due in large measure to their ability to better sustain themselves. Moreover, the greater morale among employees deriving from higher wages would also lead to greater loyalty. Known as the “Webb” effect, this would lead to greater productivity and hence overall efficiency. This wasn’t merely an academic argument because members of the business community, most prominently Edward Filene, the founder of Filene’s Basement, argued that minimum wages were needed to achieve greater efficiency.


    Arguments for the FLSA only built on these earlier arguments. The principal problem during the Great Depression was depressed wages and prices. Inflating wages was seen as essential to lifting us out of the depression. The National Labor Relations Act of 1935 was enacted specifically to end labor-management strife. By effectively giving legal sanction to unionizing, employers would be encouraged to bargain collectively with their employees, and this would ensure greater harmony and stability. But if workers through collective bargaining could achieve higher wages they would also have greater purchasing power. The FLSA, then, would provide a minimum wage to those uncovered by collective bargaining agreements. Again, it would boost the purchasing power of workers, which could only help the economy because increased spending would lead to increase demand for goods and services, which in turn would bid up prices.


    New Deal planners also saw the minimum wage as a tool for economic development. Much of the opposition to the FLSA and other New Deal measures came from the South that viewed them as new examples of northern carpetbagging. Southerners particularly opposed the minimum wage as an intrusion on their southern way of life, which was traditionally agrarian and based on a system of patronage. Wages were typically lower, and those in the North, along with a few in the South, saw the minimum wage as a way to develop the South, modernize it and improve its efficiency.

    As an extension of the Webb effect, employers forced to pay higher wages would find it more prudent to invest in new technologies that could also achieve greater efficiency.

    From the perspective of New Deal planners, a minimum wage would force a restructuring of the southern wage structure, and along with other federal initiatives help to overthrow some of the region’s traditional political and economic arrangements.

    This thinking wasn’t mere ideology, but was driven by a report titled Report on Economic Conditions of the South, which only underscored how much the South lagged behind the rest of the nation. This report was only embraced by President Franklin Roosevelt who was eager to bring economic development to the South. It was no accident, then, that the original bill known as the Connery-Black Bill was cosponsored in the Senate by Hugo Black who would later become a justice on the U.S. Supreme Court.


    As more and more states and localities continue to pass new minimum wage laws amidst the failure of the federal government to do so, it is easy to lose track of the original purpose of the minimum wage. It was never intended as a feel-good measure as critics would like us to believe. It wasn’t specifically intended as an anti-poverty measures, although it can certainly help. And it was never intended to encroach upon liberty of contract or the freedom of both employers and workers as the late Milton Friedman used to claim.


    Rather it was intended as a measure to help shore up good labor-management relations, by redressing the power imbalance that existed in so-called negotiations. It was certainly intended to help grow the economy by enhancing workers’ purchasing power, and it was intended to serve as a foundation for economic development by forcing modernization in an otherwise backwards region of the country.

    Because we have lost sight of the original purpose, it is easy to dismiss the minimum wage as being inconsequential in a global economy where the loss of manufacturing is seen as one of the primary reasons for growing inequality. But as this brief history shows the minimum wage is anything but inconsequential.

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