Oren Levin-Waldman

  • 24 Nov 2014 4:46 PM | Deleted user

    In the two weeks since the midterm elections pundits have made a great deal about the thrashing the Democrats received at the hands of the GOP. To the extent that Democrats represent a voice for a progressive agenda, that goal will no doubt be more difficult to achieve. And yet, if progressivism is defined by your ability to call the other side names, then they can keep it.


    At a time when wage median wages have been in decline, a sizeable proportion of the individuals have dropped out of the labor market and/or are underemployed, and more people are increasingly concerned about rising healthcare costs, despite the Affordable Care Act, the real question in need of an answer is whether any of our politicians really care.


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


    During these elections, Democrats either blasted the Republicans because they were waging a war on women or attributed their declining numbers to the racism of their constituents. Of course, everybody knows that calling your constituents names is always a good way to endear yourself to them and get their votes. And yet, to be fair it is difficult to win an election when you are trying to distance yourself from the man in the White House whose policies are unpopular.


    Despite this thrashing, the President fails to see the electoral results as a repudiation of

    his policies. On the contrary, it was a group of red states stacked against him, or it was because voter turnout was low no doubt due to voter suppression, or it was a messaging problem undefined that there was a failure to communicate with the American people how much better off they are. On the messaging problem, the White House may be half right: it failed to communicate why policies that benefit the middle class are essential.


    None of this, of course, leaves the Republicans off the hook, as they only trotted out the same old formula of lower taxes and eliminating regulations, and repeal of Obamacare. In fact, the GOP proved once again that it never misses an opportunity to miss an opportunity. Naturally the GOP criticized proposals to raise the minimum wage on the standard argument that they would cost jobs. But they never answered the question of what value there is in simply creating low-wage jobs that are insufficient to support workers and their families.


    Now let’s get real. The election results do not mean that the Republicans can roll back the welfare state. Nor does it mean the President has a blank check to use executive action because in his words he has waited long enough. If anything, the political fight that executive action on immigration will ignite is really a diversion from the real issue that need to be addressed, which is shoring up the middle class. One sign that the voters aren’t buying the Republican message is that four red states, Alaska, Arkansas, Nebraska, and South Dakota, passed ballot measures to raise the minimum wage.

    Perhaps the message of the election should be, and very much in lines with the idea of the median voter, is that failure to listen to the middle class will result in political defeat. The voters have shown over and over again that they want divided government for the sake of checks and balances. This means that policy is the product of consensus, which is precisely what the Framers of the Constitution envisaged. At the same time, they want answers to their problems, and engaging in diversionary political battles will result in the Democrats thrashing the Republicans in 2016.


    The opportunity the Republicans squandered was to actually support a higher minimum wage on the grounds that it was a middle class issue. And the opportunity the Democrats squandered was to couch proposals for the minimum wage in terms of the middle class. Think of how much better it would have sounded if a Democratic candidate said s/he supported policies for the middle class, and the minimum wage would help the middle class because its upwards ripple effects through the wage distribution would result in others receiving wage increases too. This would enable them to demand more goods and services, thereby adding a push to the economy. Republicans too could have made this argument, but with the additional twist that policies that help the middle class are at the end of the day about family values because family values are meaningless if workers cannot support their families.


    Conservatives among the GOP like to claim that people are poor because they aren’t married and are having children out of wedlock. But one doesn’t escape poverty through marriage; rather those who are earning a decent living are likely to get married. But I don’t want to call the political parties names either. They have spoken past each other long enough and its time to work together on a true middle class program.

    A program for the middle class contains four fundamental ideas: First, the minimum wage has to be raised, and then it has to be pegged either to inflation or productivity. Since there are upward ripple effects from wage policy, the middle class will benefit, with the added benefit that income inequality will be reduced some. Second, workers’ rights, which have been eroded though Business’s assault on labor, need to be redefined in terms of property rights. This would make an assault on workers’ rights akin to a ‘taking’ under the Fifth Amendment to the Constitution.


    Third, there needs to be a wholesale reform of the tax code. The tax code should be about raising revenue; not about social engineering. A simple code with three or four flat tax rates for the sake of progressivity and no deductions, will no doubt spur investment. But it may also have the added benefit of reducing the number of interest groups who have none nothing more than distort American politics in favor of their single purpose. Of course, there is nothing wrong with that; they are only doing what they are supposed to. Our public officials, however, are supposed to serve the public interest; not interests groups’ definition of it.


    Lastly, fiscal and monetary policy approaches need to be synchronized with wage policy. Policy for two long has involved the first two without the third. Yes easy money is important for investment, but if workers wages fail to rise as well, there is no increased demand for goods and services, and therefore no point to further investment.

    Of course, both parties working together to benefit the middle class would naturally take away the partisan edge to American politics. Instead of focusing on winning and who has power, might it not be nice to try a new approach like serving the public interest? A program for the middle class is not intended to be partisan. It is intended to revive the economy. If politicians don’t get the message, they will have demonstrated that they never cared about anybody but themselves. But we knew that, didn’t we? Because if we didn’t then maybe MIT professor Jonathan Gruber is correct: "Call it the stupidity of the American people."

  • 15 Nov 2014 4:36 PM | Deleted user

    In An Inquiry into the Wealth of Nations, Adam Smith puts forth the ideal of the "invisible hand" as the mechanism through which individual selfishness will be regulated for the larger public interest. Through competition, whereby sellers, whether they are selling consumer goods, inputs for the production process, or even labor services, will not overcharge and exploit for fear that the competitive market will otherwise punish them and put them out of business.


    In a competitive market, then, there is no need for government to regulate because the invisible hand of the market will do it.


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


    Although free marketeers hail Smith as the father of unfettered markets, nothing could be further from the truth. Smith, above all else, was a moral philosopher who was concerned with creating a just society. This becomes especially evident when his Wealth of Nations is read alongside his Theory of Moral Sentiments. He merely assumes that in a pre-commercial society where there would be true competition, people’s natural selfishness would be tamed and ultimately harnessed for the public good.


    At the same time, Smith recognizes that markets fail and that when they do government needs to step in regulate in order to preserve the competitive nature of the market place. For Smith, the biggest market failure would be monopolies in restraint of free trade or competition. Smith certainly wasn’t blind to the reality that in competitive markets larger firms would ultimately be able to undersell smaller ones, thereby driving them out of business, or that they would be able to purchase the smaller ones, thereby creating monopolies. Nor was Smith blind to the reality that employers, especially large ones, would be able to collude with one another to drive down wage rates.


    Smith’s remedy is that government should break up monopolies because they destroy competition. After all, when firms have monopolies they are able to exploit both consumers and workers alike. As the only place to purchase certain goods, consumers find themselves at the mercy of the high prices that they would charge. And as the largest employer, workers find themselves at the mercy of the low wages they would pay. One only wonders what Smith would say about what has been referred to as the "Walmart Effect."


    The Walmart effect is the ability of big box stores and box store chains like Walmart and others to exploit their market power to drive up profits, often at the expense of their employees. But here it is with an interesting twist. Because it is done in the name of providing consumers with lower priced goods, we as a society only look the other way. Typically Walmart will dictate that its suppliers reduce its prices by say 5 percent. Failure to do so means that their suppliers won’t have a contract to sell their goods. For suppliers these contracts can represent a sizeable portion of their business that without them they may well go under. It isn’t, however, just 5 percent. The next year Walmart tells its suppliers to reduce it prices by another 5 percent, and so on.


    A recent article in The New Republic revealed that Amazon, which practically sells everything these days, has also adopted the same practice. Walmart, however, takes it a step further by dictating to its suppliers what they may pay in wages and offer in benefits. Now if Walmart demands that supplier wage rates be reduced by 20 percent, they will be reduced by 20 percent. In other words, the Walmart effect is to drive down wages, not only in Walmart stores, but throughout the economy. And yet, this behavior doesn’t fit the traditional definition of monopoly power that would warrant the Justice Department stepping in to regulate on the grounds that it is activity in restraint of free trade.


    Of course, Walmart will counter that it is simply using its market power to achieve lower prices for consumers. Still, we need to recognize that this type of market power is contributing to a low wage economy and the disappearance of the middle class. Even if we dismiss Walmart as primarily an employer of low-wage workers, its corrosive effects on the economy is to ultimately contribute to those forces that drive higher paying manufacturing firms out of the country in order that they can continue to reduce their costs so that they will continue to have contracts supplying Walmart and stores like them.


    Arguably, the pure competitive market model would argue that in the face of lower wages rates, all sellers will be forced to lower their prices so that workers now earning less will be able to demand goods and services. That, after all, is supply and demand. But if people cannot afford things they will not buy, and because producers have fixed costs there are limits to how low prices can go. In other words, deflationary wages don’t mean that the equilibrium price on the standard demand curve moves down the curve, rather it means that the demand curve shifts downward to the left, thereby reflecting a much reduced level of overall demand.

    It goes without saying that if the economy is harmed by the absence of real competition because of monopolies, it is equally harmed by the absence of real competition because of unchecked market power. A serious reading of Smith would lead most to conclude that he would be just as appalled by the Walmart effect as he was by monopolies. Although Smith did not favor unions, he certainly understood why workers would organize. In the face of employer collusion to drive down wages, workers would need a measure of market power to drive up wages, which could only come about through unionization. Moreover, Smith maintained that the wages a society pays its workers reflects its character, and that a low-wage society is ultimately an unhealthy one.


    There is no doubt that we all benefit from inexpensive consumer goods, but it isn’t true that we aren’t paying for those low-priced consumer goods in other ways. By driving wages down so that we as consumers can purchase cheaper items, we are only imposing social costs on society in the form of subsidies that have to be provided, which we are paying through our tax dollars. We aren’t merely subsidizing workers who have now fallen out of the middle class, we are subsidizing the profits of these low-paying companies who at the dawn of the Twentieth Century during minimum wage debates were often referred to as parasitic industries.


    Of course, as Smith rightly noted, the wages we pay our workers says a lot about our character as a nation. The real question that policymakers should be grappling with is not simply the desirability of generating growth at all cost, but whether we can generate growth while also paying higher wages. The question then becomes what steps need to be taken in order to do that, with the understanding that an economy is built from the bottom up; not the top down.

  • 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.

     

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