minimum wage question

[0rganism]

Does anyone have a link they'd recommend to a solid treatment of the history of wage floor increases and their correllation, if any, to consumer price increases?

[stepnw1f]

1. Try Posting This In The Economics Section

[0rganism]

3. Pardon me, I thought this was the Economics section

Clearly, I have stumbled onto the sports pages by mistake. My bad.

[papau]

2. How do you prove it? That there is no correlation?

Seems obvious that if wages rise and prices do not then profits fall, or productivity increases and more sales occur with the same level of staff, or productivity increases and the same sales occur with a lower level of staff, or when wages rise so must prices.

As best I can tell, one does not see an employment drop - ever - that can be isolated down to a minimum wage increase. Likewise inflation - at least in the aggregate numbers.

My best guess is that sales increases and increased productivity solve most of the profits problem, while the price increases that do occur are so minor as to the percentage of the economy they affect that they are drowned out by all other effects.

Good luck with any multi-variate study you might do!

:-)

[0rganism]

4. Well, it IS tricky, but I thought it might have been done already

What one needs is a baseline against which to measure, to ensure that a price increase can be *isolated* as an effect of an increased wage floor.

The popular economic theory predicts that equilibrium markets will increase price to cover an increased labor cost -- granted that the increase might be minute when distributed over total production. Well, we've had several incremental increases in low-wage labor costs over the last few decades, so we should be able to look at prices for "competitive" goods and services and see that increase reflected directly in the cost. A correllation would be established if we could find instances where the price increase beat that of the inflationary aggregate only in the vicinity (maybe half a year or so) of such a labor cost increase.

> if wages rise and prices do not then profits fall

This could be the case in a non-equilibrium situation, as I understand it. If you were making "economic profit", you might have some wiggle room in pricing to raise wages without affecting point of sale.

> productivity increases and more sales occur with the same level of staff

Once again, this shouldn't matter in a "perfect" equilibrium market where the unit price must cover the entire cost of unit production including labor, and there are no inventory surpluses or backorders.

> productivity increases and the same sales occur with a lower level of staff

This would be something else to check, because one way to reduce labor costs is through laying off workers. So we should be able to link an increase in layoffs to an increase in wage floors.

> when wages rise so must prices.

This would be my guess. I would like to see how much the prices rose, overall I think the effect is extremely small. However, I can't think of a better way to examine the question of whether a particular minimum wage increase would actually benefit workers than by looking at a historical correllation of price points to wage increases.

Of course, now that we have offshoring as a common practice, and the minimum wage hasn't even kept up with inflation for about a decade, the historical record probably isn't too useful either.

edit:
> the price increases that do occur are so minor as to the percentage
> of the economy they affect that they are drowned out by all other effects.

I wonder what the tipping point would be, then, where a minimum wage increase would directly and noticably affect the price. This has been a classic argument of opposition to living wage, or -- indeed -- any minimum wage at all: "if you increase the minimum wage, prices will increase so much that the worker won't be any better-off."

My instinct is to say that yes, prices would increase, but it would be a miniscule effect in most cases and most affected workers -- except those already very near to the new wage floor -- would stand to increase consumption.

[papau]

5. I agree - the general statement "No effect" works until proven otherwise!

You would think State min wage changes would be easy to study - but they are not.

Then we get into "sticky-ness" or "inelastic", and utility functions, and in no time we have at least an MS (or MA)in Economics!

:party:

:=)

[0rganism]

6. Hey, Econ majors, maybe there's a thesis paper in here for ya!

This would be one direct way to test the equilibrium model against actual markets, for instance.

[idlisambar]

7. Other complications

Another effect of the minimum wage that wasn't mentioned is the possibility of a more compressed wage distribution. Overall labor costs could be held in check as better paid employees receive smaller bonuses or a reduction in benefits, for example.

Concerning...

Well, we've had several incremental increases in low-wage labor costs over the last few decades, so we should be able to look at prices for "competitive" goods and services and see that increase reflected directly in the cost. A correllation would be established if we could find instances where the price increase beat that of the inflationary aggregate only in the vicinity (maybe half a year or so) of such a labor cost increase.

The objective of this type of program seems to be to find the most likely industry configuration and timeline in which prices would rise in response to a minimum wage increase. By establishing such a correlation one is in effect establishing a "max" price increase that could be possible with a given minimum wage increase (the other factor to look for that wasn't mentioned was that the industry(ies) should be one(s) in which labor costs due to low-wage workers figure promininently). The results of such a program may not tell us much about the effect on prices for goods and services in the wider economy other than it must be less than "x", though this would be useful in and of itself if the case is persuasively made.

[Nadienne]

8. Sorry, no link

only my own theories...

In an industry where there are still a reasonable number of companies competeing for customers... If wages are raised for all workers of each of the companies, and the market is still competitive, each company will be reluctant to raise their prices - unless all the other companies raise their prices at the same time.

...because, those companies that produce and sell most efficiently (ie, cheaply, cost-effectively) can keep their prices down - and thus keep their consumers... whereas those who can't keep their prices down clearly have efficiency problems and don't deserve their consumers...

Therefore, raising minimum wage (and the wage of every worker) shouldn't hurt big corporations that have more leverage for buying raw goods at cheaper prices nearly as much as it hurts smaller companies that don't have the same edge that corporations and big companies have.

But there is another way to look at this.

The cost of things that are needed to live - food, clothing, shelter - are going up. These costs are going up no matter how cheaply WalMart can sell DVD players. These costs are going up no matter what minimum wage is.

Maybe there is a correlation between cost of living, wages, and DVD player sales... Though, of course, credit cards offset this somewhat...