The Math Of Wishful Thinking On Unskilled Worker Pay
A $33 minimum wage. That's what Ginia Bellafante is suggesting in The New York Times -- based on what it would take for workers to live comfortably in New York City:
A single parent with two school-age children, for example would need to make nearly $69,427 a year, according to City Harvest's Self-Sufficiency calculator. That amounts to an hourly wage of just under $33.So to live comfortably enough in all but the most expensive quarters in Brooklyn, a two-parent family with two children would need to make about $70,000 a year, which would mean that each parent would need to earn just over $16 an hour. That figure accounts for the $433 the family would receive in child-related tax credits. All across the city, the cost of basic needs is rising faster for low-income families that conventional inflation metrics actually indicate. Also dispiriting is the fact that nearly a quarter of households that fall below the self-sufficiency standard include an adult with a bachelor's degree.
How much do we think people will pay for a fast-food hamburger?
Oh, wait -- the price should stay relatively close to what it is now if only fast food joints eliminate almost all of their employees, and just have that one dude making $33-an-hour to supervise things when the ordering robots and cooking robots get it wrong.
Maybe automation's not entirely there yet -- but there's no incentive to get it there like a $33-an-hour wage for unskilled labor.
Don Boudreaux, an econ prof I greatly respect, points out that wages (in the economic real world) "depend on how much value workers produce," not how much they need.
Suppose that low-skilled workers sold their output to the general public not indirectly by selling their time and effort to employers but, instead, by selling their outputs--such as packets of food, articles of clothing, and hair-dressing services--directly to consumers. Does anyone believe that all of these workers' incomes would rise if government mandates that workers must raise--to generate hourly incomes of at least $33--the prices workers charge consumers for these outputs? Who does not see that the result of these mandated minimum-prices would be, not the income increase that Ms. Bellafante envisions, but an income decrease which is the inevitable result of consumers responding to these higher prices by purchasing fewer units of these outputs?
What is it with lefty econ, that there's never that much needed push through to the unintended consequences zone? As Boudreaux puts it:
The fact that most income-earners sell their outputs to the public indirectly, through their employers, does nothing to change the reality that forcing workers to charge for their services more than those services are worth puts workers out of jobs.
This insanity really seems to be growing, and I hope it peaks and recedes soon. If you actually see enough of human history to understand how things get done, rather than living in presumption and wishful thinking, it's terrifying to see this move through the population as would a fashion for a haircut or a clothing style. It's natural for human hearts to believe that [A.] all the wealth has been created, so the people with the most must have stolen it and [B.] somebody's supposed to be in charge and deciding our fates.
But people are sooooo eager to be flattered for their beliefs....
Crid at January 29, 2019 3:41 AM
What a lovely NYT article! Outside of the quoted paragraph, there are some other bits that struck me for one reason or another:
Indeed. Ms. Bellafante knows her readers. So let's start caring, shall we? Minimum wage hikes are good things, agitated for by good people. But, but...
So she admits there's a downside. I'll give her credit for that, though she meditates no further on the idea. Besides, cost of living issues must be the fault of corporate meanies...
Didn't there used to be a time when a company moving into a place like Queens was considered a good thing? I get it -- NYC is an expensive place to live, and the author seems to hover at the edge of awareness that mandating higher wages might not benefit everybody. But without the imagination to ask why living in NYC is so expensive, merely insisting on higher wages isn't terribly enlightening.
Old RPM Daddy (OldRPMDaddy at GMail dot com) at January 29, 2019 5:24 AM
@Crid,
Nope, no, not any time soon.
History will repeat itself and it's going to take many years, decades even until everything collapses on its sheer political idiocy.
Remember, if it took this long for Illinois to reach such a sorry state of insolvency, how long will it take for the state of New York to reach that goal?
Sixclaws at January 29, 2019 5:33 AM
So, is Ms. Bellafante in favor of a wall on the southern border?
No, probably not. Does she not understand that the border jumpers are no skill, low skill workers and will cheerfully flip burgers in NYC for $12/hour when the minimum wage is set at $33? and probably provide a much better customer experience, to boot?
Add to that Bob, owner of Bob's Burgers, will pay them under the table and claim to have robots doing the actual production (narrator: he's lying) so he also doesn't have to pay for unemployment insurance, workers comp, and income tax and FICA withholdings.
Turns out, hiring a legal worker is rather expensive.
I R A Darth Aggie at January 29, 2019 5:43 AM
Also, the more skilled people who are now above minimum wage will be severely pissed if they're getting paid the same as the people who aren't as skilled as they are.
And then there's everyone else in the city. Suddenly, their buying power has been decreased, and their perceived quality of life has taken a hit. Sooner than later, they'll ask for and get pay raises.
Now you've got even more money chasing certain relatively fixed classes of services, mainly housing. I just took a look at zillow's rental listing for Brooklyn, NY, and the lowest cost 1/1 was $1,300/month. Unless that's rent controlled, that rent is going go up, probably a lot. I would estimate that when you get to $33/hour, that place will rent for a cool $2K/month.
So, here's your big pay raise. Also, everything you need to live just got a lot more expensive. You have to pay Timmy the stock boy at the market his $33/hour.
I R A Darth Aggie at January 29, 2019 5:54 AM
Remember, if it took this long for Illinois to reach such a sorry state of insolvency, how long will it take for the state of New York to reach that goal?
If they go for $33, then it'll be much sooner than Illinois descent. Many slackers and illegals will migrate to New York in search of work. To paraphrase the quote attributed to Willie Sutton, because that's were the money is.
And when they can't find work, they may not go elsewhere to find work. They might just go for the welfare benefits.
I R A Darth Aggie at January 29, 2019 6:05 AM
Back when I was creating staffing and productivity models and doing cost allocation models, I used a 35% figure to estimate the additional non-salary costs of hiring a legal worker. That was the standard multiplier then. It may be higher today.
Using that 35% multiplier, a $33/hour worker will cost an employer roughly $45/hour. A $15/hour worker will cost his employer just over $20/hour. California's minimum wage is $11/hour. That means employees in the Golden State cost employers almost $15/hour now.
This is what the people pushing for $15 or higher don't seem to get. If the stock boy at the grocery store is making twice what he makes today, labor costs for the grocery store will go up. Prices will have to be raised to cover these new costs since they can't be taken out of profits. Net profit for the grocery industry averages around 1-3%. There is no extra fluff to cover increased costs without raising prices.
The minimum wage worker struggling now to make ends meet will still be struggling, even with his wages doubling.
Teach your children to get good at something that someone will pay them to do; that someday they will be selling their skills, knowledge, and work ethic on the open market. No one owes them a living, or a living wage.
The other thing the "raise the minimum" crowd ignores is the folks making between the old minimum and the new. No one who clawed his way up to making more than the minimum wants to find himself making the minimum again. He knows his salary position relative to his coworkers and want to maintain that position.
Union contracts often specify that member wages must stay a percentage above the minimum. Any increase in the minimum wage triggers an increase in union wages. Many service workers today are unionized (e.g., grocery store workers at Kroger, Albertsons, Safeway, etc. and drug store workers at CVS and Rite-Aid - through UFCW). Any increase in the minimum wage will trigger an increase in their wages (i.e., labor costs at those aforementioned chains).
Conan the Grammarian at January 29, 2019 6:59 AM
This illustrates two things about how Progressives have regressed in the last 150 years:
1. They were in the forefront of economics in the 19th Century. When Marx restricted himself to economic analysis (looking at what _was_ rather than what he dreamed could be), he was far ahead of most of his contemporaries. Now economics has advanced to the point of almost being a numerical science, and Progressives still read Marx...
2. When Progressives first agitated for a minimum wage, they understood and intended the effects. They wanted to drive workers who had not or could not acquire any skills out of the workforce and into workhouses, where they would be banned from contact with the opposite sex. Their goal wasn't to help the poor, but Eugenics: stop the poor and "inferior" from breeding.
Now, they advocate the same thing, but think it's for a nearly opposite reason. And that's true in many other areas: Whether they are alarmed about an impending ice age or global warming, the solution is a far more intrusive and centralized government. Whether they are worried about crime or about abusive cops, they want to restrict guns to _only_ the cops.
markm at January 29, 2019 8:00 AM
"I used a 35% figure to estimate the additional non-salary costs of hiring a legal worker."
It is the same today Conan. Some fixed costs have gone up but wages went up to match. So the percentage is still roughly the same. If you are talking about a contract worker who provides their own tools and workspace you use 50% for relatively unskilled hourly labor.
Once you hit marginally skilled to degreed labor (also contract and providing all their own stuff) you are at 100%. And you see the same type of bump up for salaried people where benefits are a significant part of their cost.
Above that to the best of my knowledge you are into specialty skills and you don't really have a percentage anymore. Either you have someone who can do the job or you pay out the nose to get it and limit how long you are paying. So numbers wander all over the place and there is no realistic general percentage.
Ben at January 29, 2019 10:03 AM
Their goal wasn't to help the poor, but Eugenics: stop the poor and "inferior" from breeding.
Ah, that has changed. Now they pay them to have kids. We have third and fourth generations brought up in a welfare state, were they see such largess as a birthright and not a gift.
I R A Darth Aggie at January 29, 2019 10:31 AM
"Does she not understand that the border jumpers are no skill, low skill workers and will cheerfully flip burgers in NYC for $12/hour when the minimum wage is set at $33? "
She understands it. That's the whole idea.
Cousin Dave at January 29, 2019 12:45 PM
"We have third and fourth generations brought up in a welfare state, were they see such largess as a birthright and not a gift."
The are imprisoned. It's a moderately comfortable prison. Some of them have grown so accustomed to it that they don't even realize that an outside world exists.
It's a prison with no bars, no jailers, no searchlights, no razor wire. But it is a prison nonetheless. The prisoners are confined by a talisman known as the "check" (regardless of its physical form). The check holds their hearts and souls in its hands, dangling them on a thin line over a pot of boiling oil like the salvation of a Calvinist. Every one of the prisoners knows that if they are ever denied the blessing of the check, even for a moment, they will all die instantly. When challenges arise, all their masters have to do is insinuate that any would-be usurper of the jailhouse keys will "take away your check". The threat of losing access to the Precious is more than enough to keep them in line.
Cousin Dave at January 29, 2019 12:55 PM
Why do they assume that a min wage job should support 3 people? The minimum jobs are for people who are starting out, teens, people who can't find a better job or who are desperate. McDonald's specifically hires teens and promotes their work as entry level "first job". Why should someone be comfortable on min wage? One should strive to better oneself and move up.
If you mandate high wages, then prices for things must go up and the whole wage scale has to rise, and in no time you have hyperinflation. This can destroy a country.
cc at January 29, 2019 2:58 PM
Two weeks ago I took my 7-year-old granddaughter to McDonald's for lunch. They have six kiosks there now for ordering and paying. The place was fairly busy; lots of customers. Most of the kiosks were being used at any given time, but there was always at least one available so there wasn't any wait for one. My granddaughter likes the kiosks because she can do everything herself, and as many do-overs as she wants without annoying anyone when she changes her mind during the process. She's so cute!
They have six cash registers, but there was only one cashier to take orders, a young woman of color with a head covering, a chubby face, big eyes and a cheerful affect. When she made eye contact with customers they smiled - definitely an asset to the business. She didn't take any orders or collect any money during the half hour we were there, though she stayed within a few steps of her cash register, mostly doing helpful tasks like replenishing napkins, straws and paper cups, pouring coffee, putting things in bags and such.
There aren't as many people working in the front, behind the counter, as there used to be. Just the cheerful cashier and a sleepy looking young man putting bags of food on the counter and calling out order numbers. There was a serious, hyperactive, redheaded young woman carrying trays of food to tables, wiping tables and seats with two different cloths, and sweeping litter off the floor.
Before the kiosks they used to have at least three and often six cashiers working at any given time. The place seemed a lot more bustling, though it wasn't any more crowded with customers. And it does take a little longer to get your stuff now, but not too long. It's quieter now, less movement and talking, maybe because there's a lot less interaction between customers and staff.
Ken R at January 29, 2019 6:49 PM
I talked to my friend who manages at a restaurant in Seattle the other day and he mentioned he was worried about work. So I asked a bit about it.
He is pretty sure the owner is losing money on it...making a tiny bit at most. Much like mentioned here, the indirect cost increases are what are killing them. The landscape company, the night cleaning company, food supplies and delivery... all in addition to their labor costs increase.
He says they have re-worked the menu...easier things to prepare, cheaper ingredients, smaller portions, etc. They re-did the bonus system...so while people are getting a little more pay it is not so much...but the pay floor is higher. Oh and they aggressively cut people as soon as business starts slowing in the evening. He said the one thing that has really helped is pushing Alcohol.
He says the Applebee down the street is hurting too.
The Former Banker at January 29, 2019 7:42 PM
Oh, I heard again today...these people who think companies have Scrooge McDuck money piled away somewhere.
While some of my employers had huge revenue none had all that great of profit. The I know the most detail about made almost $1000 in profit per employee. On the other hand the lost about $500 per an employee the previous year...yeah part of that was money from the one year didn't come in until the next.
Why do people think all these companies have these huge pools of money just lieing around?
The Former Banker at January 29, 2019 7:50 PM
"Why do people think all these companies have these huge pools of money just lieing(sic) around?"
Because the only thing they "know" is that someone is screwing them. That's what they are told, relentlessly.
Something you might not know about the earnings of a company, especially big ones, from Carl's Jr/Hardees CEO Andy Puzder:
And of course, you have never thought about the basic unit of labor...
Radwaste at January 29, 2019 9:43 PM
The following statement is misleading:
"Don Boudreaux, an econ prof I greatly respect, points out that wages (in the economic real world) "depend on how much value workers produce," not how much they need."
Analysis of the economic data shows that wages and productivity became decoupled roughly in 1970:
https://www.epi.org/productivity-pay-gap/
We have had more or less stagnant wages for ~50 years when inflation is taken into account as economic productivity has continued to skyrocket.
Wages over that time period corrected for inflation have risen ~15% while the overall productivity of the economy has increased by ~146%.
So while in principle it is true that the wages depend on the value a worker brings to the table, for every 1% wage increase we are seeing a 10% increase in wealth production.
That 9% differential doesn't evaporate into nothingness, it is going somewhere... it just isn't going to the folks doing the work in the trenches. This is why we have seen CEO pay balloon over the same time frame, that 9% differential is disappearing into the pockets of a few folks at the very top (and it isn't necessarily because they are performing... we see the same massive differentials even in companies that have been driven completely out of business by poor management).
Artemis at January 30, 2019 12:59 AM
Scott Winship, a social policy expert now with the Manhattan Institute and formerly of Brookings Institute, disagrees with your EPI chart, Artie.
In his own research, Winship finds that between 1973 and 2007, U.S. hourly compensation rose 71 percent, while productivity rose 74 percent.
According to the Heritage Foundation’s James Sherk:
Try reading something other than Democratic Party talking points, Artie.
Conan the Grammarian at January 30, 2019 6:12 AM
What you are missing Artemis is it isn't wages that correlate with productivity but cost. When wages and productivity started to decouple that was due to other costs (benefits, regulation, etc) that cut into wage gains. They aren't vanishing into CEO pockets as you claim. At least not into CEO pockets at the company the workers work at.
Ben at January 30, 2019 8:48 AM
It is curious that those who think businesses have piles of money and make obscene profits don't go out and start a business. It is the same with those who believe women make $0.75 on the dollar for men: why don't they start a women-only business? A 25% profit advantage would be hard to beat. But they don't and in fact the few feminist women-only businesses tend to fail (probably too much ideology and not enough profit-motive).
cc at January 30, 2019 10:02 AM
Ben thinks Orion needs to send his ideas through a centralized clearinghouse!
> It is curious that those who think
> businesses have piles of money and
> make obscene profits don't go out
> and start a business.
Boom! CC swings The Big Hammer. ✔
Whatever the problems in my career —and Christ Almighty, what a nightmare— I toiled and composed a tiny micro-fortune within the most shamelessly capitalist, nakedly huckstering corner of the global economy ever devised. Street hookers in Bangalore never showed titty so fast as Hollywood.
Put up or shut up.
Crid at January 30, 2019 10:46 AM
"This is why we have seen CEO pay balloon over the same time frame, that 9% differential is disappearing into the pockets of a few folks at the very top (and it isn't necessarily because they are performing... we see the same massive differentials even in companies that have been driven completely out of business by poor management)."
You have no standing to protest such a thing: the pay of corporate officers is determined by a board, according to the charter filed with the state of record.
So...
Your alternative is to advocate for:
• Full government determination of salary/wages. What is that called?
• Corporations to operate outside of their charters.
Radwaste at January 30, 2019 11:27 AM
This is the new insult Crid? Putting random words together? Are you sure you ever left high school?
Ben at January 30, 2019 12:52 PM
Don't be bitter.
Crid at January 30, 2019 2:19 PM
Riiight. I'm the bitter one Crid.
Go back to sleep grandpa. Those scary clouds will have flown away by the time you wake up.
Or alternately you can stop acting like a troll and start acting like an adult. Your choice. No pressure.
Ben at January 30, 2019 4:01 PM
Ben Says:
"What you are missing Artemis is it isn't wages that correlate with productivity but cost. When wages and productivity started to decouple that was due to other costs (benefits, regulation, etc) that cut into wage gains. They aren't vanishing into CEO pockets as you claim. At least not into CEO pockets at the company the workers work at."
Unfortunately what you are saying here isn't actually supported by the economic data.
https://www.epi.org/publication/ceo-pay-remains-high-relative-to-the-pay-of-typical-workers-and-high-wage-earners/
As you can see, before the wages and productivity trends decoupled the ratio of CEO pay to worker pay was a ratio of 20 to 1 in 1965 (this is prior to the decouple).
In 2016 the ratio was 271 to 1.
In otherwords, as soon as worker wages were decoupled from the productivity they provided... the excess went primarily to the top.
Artemis at January 30, 2019 11:00 PM
Radwaste Says:
"You have no standing to protest such a thing: the pay of corporate officers is determined by a board, according to the charter filed with the state of record."
My investment portfolio says otherwise Radwaste.
Why is it folks just assume that someone who thinks the current system isn't functioning in an optimal fashion is "complaining" as a worker.
My standing is that a shareholder and partial owner in these publicly traded companies I do not believe the CEOs offer the value they are being compensated with and that my share value would be most benefited by compensating the folks doing the work in the trenches more.
The only "standing" I need to make such a protest is to be a shareholder of record in said companies (which I am).
The compensation of the corporate officers isn't simply determined by the board... and even if it was, who do you think gets to vote on who sits on the board in the first place?
My standing is that I am a partial owner in these companies and they aren't operating in the fashion I most approve of.
Now if you want to argue that the shareholders in a publicly traded company have no standing in terms of protesting how their companies are run... then I have to question who you think actually owns these corporations.
Artemis at January 30, 2019 11:07 PM
Conan,
Why is it you always pitch a fit when someone presents data that you happen not to like?
If you want to discuss and debate the data feel free to have a reasonable conversation.
There is no reason for you to throw a tantrum.
Artemis at January 30, 2019 11:11 PM
cc Says:
"It is curious that those who think businesses have piles of money and make obscene profits don't go out and start a business."
Interesting proposition... allow me to give you some food for thought.
It is curious that renters who think owning a home results in longer term wealth accumulation don't go out and just purchase a home of their own.
The issue here of course is one of starting capital. In order to own a home one first needs to generate a down payment... until then they are stuck renting.
Similarly, in order to start a business one often needs starting capital sufficient to build out the necessary infrastructure. Not everyone is interested in starting a service business they can run out of their home for example.
If you desired to start up your own machine shop for example, how much capital equipment would you need to purchase before you could even think about getting started?
There is a significant barrier to entry that one often cannot just choose to go through.
Some business models are very cheap to start up, others are quite costly.
A typical mechanical engineer isn't exactly in a position to just choose to start a competitor to Boeing by designing airplanes out of their garage... they would need about a billion dollars just to get started.
Artemis at January 30, 2019 11:29 PM
It's not a fit or a tantrum, it's a counterpoint in a debate.
Repeating your already-rebutted point ad infinitum will not change the fact that your cited source has been discredited - by serious economists.
Let me refresh your memory:
Ring bell? Check my post at - January 30, 2019 6:12 AM. Follow the link for Dr. Winship's paper on the topic. EPI's methodology is faulty.
Let's have some more:
A commenter - Matt Rognlie, an assistant professor of economics at Northwestern University - points out at Scott Sumner's The Money Illusion blog (Sumner is also an economics professor):
More from Dr. Rognlie:
A former VP of the St. Louis Federal Reserve, Richard Anderson, points out that the EPI chart uses only hourly compensation, leaving out overtime, bonuses, and benefits and that when total compensation is used, productivity and employee compensation track pretty closely.
In fact, the only place I can find the EPI chart cited as accurate is in partisan political discussions - even on reddit's badeconomics, the EPI chart is criticized as inaccurate and faulty.
If all this criticism, expert and amateur alike, doesn't completely discredit the EPI chart, except to partisan die-hards, it certainly leaves room for doubt in the open-minded.
==================================================
Here we go again.
CEO pay vs. labor pay is not an accurate measure of economic health. It doesn't actually show anything. And coupling it with that already-discredited EPI chart makes your argument little more than nonsense.
Your linked EPI article compares the pay of CEOs of "America’s largest firms" to that of labor for the same. It does not compare average CEO pay in America to average labor pay in America.
In 1965, when that ratio was 20-to-1, the economic environment was very different. There were no serious international competitors for "America's largest firms." High shipping costs meant that foreign-made goods imported to and sold in the US faced enormous price obstacles. Even goods made overseas by US-owned factories faced enormous price obstacles due to high shipping costs (75% of the final cost of the product was due to shipping).
The former overseas competitors of "America's largest firms" were still struggling with the aftermath of World War II, even though it had been over since 1945.
Today, the CEOs of "America's largest firms" oversee organizations with global operations. Being a CEO for a multinational today requires a considerably higher degree of knowledge and skill; there are a lot more plates to be kept spinning.
In addition, containerized shipping has reduced shipping costs to only about 10% of the final cost of the product. Companies can now take advantage of lower labor costs overseas on a large scale. Using lower-cost labor has lowered the average labor compensation - increasing that CEO-labor pay gap considerably.
[Read The Box by Economist reporter, Marc Levinson, for an in-depth study of the history and effects of containerized shipping.]
Your 1965-to-2016 comparison is apples-to-oranges. If you want to argue against any sort of CEO pay gap, try comparing the biggest foreign conglomerates to "America's largest firms" for the same years. Be sure to adjust for the size and scope of the operations of the companies in your comparison.
Otherwise, you're just shilling partisan political propaganda.
Conan the Grammarian at January 31, 2019 9:40 AM
"My investment portfolio says otherwise Radwaste."
Nice cherry-pick.
Meanwhile, you didn't use the building of your "investment portfolio" to learn the two things I bulleted.
Go back to sleep.
Radwaste at January 31, 2019 12:21 PM
Radwaste,
It isn't a "cherry-pick"... you made a very definitive claim that I had no standing to "protest" how executive compensation was determined.
My only point is that as a shareholder I have every right to criticize or object to the manner in which companies in which I have a financial stake are being managed.
Nothing you said changes this fact.
Artemis at February 1, 2019 3:53 AM
Conan,
I want to see data... not just assertions.
If you have actual data to present I am really interested in taking a look so I can examine it for myself.
"Being a CEO for a multinational today requires a considerably higher degree of knowledge and skill; there are a lot more plates to be kept spinning."
Working for a multinational today in any capacity requires a considerably higher degree of knowledge and skill than in years past. This is not a point of differentiation.
Artemis at February 1, 2019 4:01 AM
Conan,
Just one further point for discussion:
https://www.econlib.org/archives/2015/03/the_bizarre_way.html
"Perhaps economists are interested in the purchasing power of income under the assumption that all income was consumed. But in that case GDP would equal C, and investment would be zero. So the two price indices would be identical. As long as GDP does not equal C, it makes no sense to deflate income with the CPI or the PCE."
It seems that there is even some criticism for using the CPI or PCE as a deflator in economic analysis in general.
The PCE deflator is at the core of all the criticisms you have cited... so it isn't even clear that those criticisms are valid.
Here is what I want to see:
1 - A list of all assumptions that go into the construction of the historic economic models
2 - The source of the raw data used to generate any trend plots
3 - The trend plots themselves showing how the variables of interest are correlated
This information is critical when it comes to accurately assessing the data.
Artemis at February 1, 2019 4:15 AM
"Any" capacity, Artie?
The scope of the job of an assembly line worker has not changed. The scope of the job of a CEO, on the other hand, has grown by leaps and bounds.
The assembly line worker in 1965 was concerned with attaching an assembly to a frame. In 2016, he still was concerned with that; he may have been using different methods or tools, but the scope of his job has not changed.
That's why a semi-skilled third world worker can do today the job that used to be done by a unionized American worker. It's the whole point of off-shoring.
That assembly line worker was not, and still is not, making decisions that affect he livelihoods of thousands of workers. The CEO is.
Good for you.
I've given you the opinions of several professional economists who say the EPI's methodology was faulty. You want to challenge the economists' conclusions, take it up with them. You didn't demand to see the EPI's data when you agreed with their conclusion.
All the models I can find that were not done by the EPI show productivity and wages track fairly closely. EPI chose to use two very different and divergent deflators in its model, making me wonder if the truth was their aim or if they were trying to build a chart that would prove an already-accepted hypothesis.
Conan the Grammarian at February 1, 2019 7:09 AM
Conan Says:
I don't know if you noticed... but you just tried to sneak in a strawman argument.
My claim was as follows:
"Working for a multinational today in any capacity requires a considerably higher degree of knowledge and skill than in years past."
So let's be clear... we are talking about a higher degree of KNOWLEDGE and SKILL.
You then unilaterally attempted to shift the conversation to "scope":
"The scope of the job of an assembly line worker has not changed."
But we aren't talking about "scope" Conan... we are talking about knowledge and skill. These aren't the same things.
That a machinist in 1965 and a machinist in 2016 are both tasked with fabricating precision parts isn't the conversation. The conversation is that in 2016 the machinist needs to have a skill set that includes the use and programming of CNC machines... the machinist in 1965 didn't have to know any of that.
In other words... my point is accurate, the knowledge base and skill sets required to perform the same job functions have increased pretty much across the board... so that is not a distinguishing feature.
If you want to talk about scope as being a distinguishing feature in wages, that isn't a good argument either.
A specialist cardiothoracic surgeon will typically earn far more than a general practice internist... and yet the "scope" of the specialist is limited as compared to the general practitioner (and the decisions of the general practitioner affect the lives of more people than the specialist as they see more patients per year).
There is no legitimate justification for what we are seeing... just a lot of hand wavy excuses and post hoc justifications.
Next point, you cay the following:
"I've given you the opinions of several professional economists who say the EPI's methodology was faulty. You want to challenge the economists' conclusions, take it up with them. You didn't demand to see the EPI's data when you agreed with their conclusion."
On the contrary, I did look at that data myself because they actually provide their sources.
You on the other hand have only provided opinions that do not open the books on how their analysis was performed or where their data came from.
In other words... the data I provided is transparent, yours is opaque.
I will also point out that the folks at the EPI are also economists... so there appears to be a difference in expert opinion, which makes it all the more important to actually analyze the data for myself.
You are the only one apparently who seems satisfied to just take an opinion that appeals to you and put it out there as fact without looking at the data.
I am not sure why you would object to my desire to look at the data and make an informed decision on which is the more robust and reasonable methodology... it makes me wonder if the truth is your aim or if you are trying to just stick with a position you happen to like as opposed to drawing your conclusions on the data itself.
You presented expert testimony sufficient to convince me that additional consideration was warranted... however since you refuse to present any data that back up their opinions I must conclude that you haven't seen any you can easily reference.
Artemis at February 3, 2019 10:24 PM
Conan,
I think it is also important to clarify that you haven't provided the opinions of "several" economists.
Scott Winship for example isn't actually an economist. His academic background is as follows:
"Winship received a B.A. in Sociology and Urban Studies from Northwestern University in 1995, and an M.A. in Sociology and Ph.D. in Social Policy from Harvard University in 2005 and 2009"
So he is properly referred to as a sociologist.
On the other hand, the folks at the EPI are actual economists.
Furthermore, one actual economist you quoted may have reasonable criticisms for the plot the EPI put together... but he doesn't appear to actually disagree with the overall conclusions.
Matt Rognlie has this to say in onw of his own papers:
http://mattrognlie.com/inequad.pdf
"The recent global decline in the labor share is a widely-studied macroeconomic trend, and although its contribution to overall inequality to date has been much smaller than that from labor income inequality (see Francese and Mulas-Granados 2015), it may rise in importance going forward."
In other words... he claims that economists in general are widely studying the macroeconomic trend that labors share in the capital gains of the economy have been declining.
That is a problem.
Artemis at February 3, 2019 10:48 PM
Conan,
Just to close this up with a neat little bow.
In that paper I cited by Matt Rognlie... the citation within the quited section... that paper has this to say:
https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Functional-Income-Distribution-and-Its-Role-in-Explaining-Inequality-43415
"This paper is motivated by two parallel trends: the declining labor share of income and increasing inequality. Micro and macroeconomic data, covering up to 93 countries between 1970 and 2013, are used to assess whether the declining labor share of income has been a key factor driving growing inequality. The major conclusion is that changes in income inequality across a wide range of countries have been driven significantly by changes in the inequality of wages"
So you can whine and complain all you like regarding the EPI graph... but your own cited expert economists all seem to agree that the decline in labors share in the economic fruits of productivity since the 1970's has a root cause in the inequality of wages.
Are you now going to try and discredit your own chosen experts?
Artemis at February 3, 2019 10:56 PM
Face it, Artie. Both EPI studies are flawed. They were published to provide cover for politicians, not to uncover the truth.
The productivity-pay gap one used widely divergent deflators for worker pay and productivity, skewing the data in a direction the writers wanted it skewed. The CEO-worker pay gap study limited the CEOs used in the study to the highest paid 0.1% - 350 out of a pool of 246,240 CEOs.
According to factcheck.org:
Not quite the crisis you so desperately wanted it to be, eh? And notice that the factcheck commentary compare wages to wages, not total compensation to base hourly wages.
Factcheck admits, "The BLS data are wages and not total compensation, which can include items such as stock options, bonuses and benefits. So this isn’t an apples-to-apples comparison with the figures from the EPI report, but it is further evidence that when all CEOs are included, the pay disparity is far smaller than that cited...."
Regarding your comments on the productivity-wage gap study:
Never said he was. I cited Winship as a "social policy expert."
The economists who disputed the EPI's productivity-worker pay gap findings and whose opinions were included in my cited commentary were:
That's "several economists," Artie.
According to that same University of Chicago bio, Winship's discipline is "economics" and his fields of study are, "labor economics," "income and poverty," and "social mobility."
Not to mention the little bit about, "Earlier in his career, Winship was research manager of the Economic Mobility Project of The Pew Charitable Trusts and a senior policy adviser at Third Way."
Winship is more than qualified to be included in the umbrella term of "economists" and to comment on economics and economic research. There's that pesky word, "economic," again.
I'll read the Rognlie paper you linked, but it won't change the comments he made on Sumner's blog, that the methodology in the EPI productivity-wage gap was flawed - the study for which you! reviewed the raw data and pronounced it valid, this despite the use of divergent deflators, cherry-picked data for the lowest-paid workers, and exclusion of total worker compensation, all in order to further deflate wages and "prove" a politically-desirable hypothesis.
How about you, Artie? Are you! qualified to comment on economic research? Why should we take your! word that the EPI study is solid? Why should we take it as fact because you! personally reviewed the data and found the study valid?
By the way Artie, you're the one who jumped from productivity-wage gap to CEO-worker pay gap when I refuted the EPI productivity-wage gap study you cited.
Also, Artie, a cardiac surgeon vs. a general practitioner is hardly a valid analogy for a CEO vs. an assembly line worker, whether discussing scope of work or KNOWLEDGE and SKILL.
Talk about straw man arguments.
Conan the Grammarian at February 4, 2019 9:10 AM
Conan,
"Face it, Artie. Both EPI studies are flawed. They were published to provide cover for politicians, not to uncover the truth."
You have everything twisted Conan.
We can always quibble about flaws in studies, or areas where things could be improved. The most important question is whether or not the chosen metrics end up leading us to incorrect conclusions.
Based upon the research of your own chosen experts it would seem that the study in question and their own research have converged on the same general conclusion.
That you want to call this conclusion "political" is wearisome. That conclusion apparently represents an honest appraisal of reality unless you are cherry picking.
You can whine and complain about the EPI studies all you like... but no matter how much you rant you cannot escape the following quote from a paper cited by one of your own chosen economic experts:
"The major conclusion is that changes in income inequality across a wide range of countries have been driven significantly by changes in the inequality of wages"
I am sorry if you don't like that conclusion, but apparently that is the truth of things.
I actually do care about the truth here Conan... and in that regard I am far more interested in overall trends than nitty gritty details.
Let me try to work by analogy for a moment so you can understand my perspective here. In research it is often useful to use approximations to get at the truth of things. Sometimes those approximations can distort the details a bit, however so long as the direction of the trend is still accurate we can still gleen useful insights from the analysis.
If I were to measure you with a meter stick for example and concluded that you were ~2 meters tall... someone could rightfully criticize my measurement as being too coarse... but I am still in the right ballpark. I am not suddenly going to be off by 1 meter one way or the other.
Similarly, criticize the EPI analysis all you like... but it seems like their overall conclusions are consistent with the conclusions of published peer reviewed economic publications. So maybe their methods are coarse... maybe they do not meet the rigorous standards of peer reviewed research... I am fine with that if the methodology allows us to draw accurate trend based conclusions (even if the specific numbers have comparatively large error bars).
Where I would not be okay with their analysis is if it seemed like they were concluding things that ran contrary to the rigorous peer reviewed research.
Back of the envelope estimates are fine if you use them appropriately... which in this case I have.
Artemis at February 8, 2019 4:00 AM
Conan Says:
"How about you, Artie? Are you! qualified to comment on economic research? Why should we take your! word that the EPI study is solid? Why should we take it as fact because you! personally reviewed the data and found the study valid?"
I never asked you to take anything as fact because I said so. I encourage you to look into the details of the data for yourself.
Again you are twisting things. I asked you for the data associated with the plots you linked to... and you refused to provide anything.
So in response you accuse me of asking you to take my word for something?
That is crazy talk Conan. I just want to see the data for myself... and you are free to do the same.
Artemis at February 8, 2019 4:05 AM
Conan,
By the way... cursory analysis of all of your economics experts shows that they agree that wages have been stagnant for decades:
Here is Dean Baker:
http://cepr.net/publications/op-eds-columns/actually-workers-wages-are-growing
The relevant quote:
"Two years of decent wage growth does not come close to offsetting the havoc wrought by the Great Recession, much less the previous three decades of stagnating wages."
So great... his conclusion is wages grew for 2 of the last ~35 years, and that this growth doesn't come close to offsetting the problems resulting from the crash in 2008-2009.
Again, this seems consistent with the general conclusion that overall wages have flatlined since ~1980.
Artemis at February 8, 2019 4:17 AM
Now who's "twisting things?"
That wages are "stagnant" or "have flatlined" was not the argument you were making. The alleged gap between productivity and wages was. And the economists I cited agree that wages and productivity move pretty much together; that models showing they don't are beset by methodological flaws.
The "Great Recession" you mention was in 2008. That's a far cry from the 1970 wage-productivity decoupling you alleged at the beginning of your rant. And from the 1965-2016 widening CEO pay gap you alleged in a sidetrack argument is robbing workers of fair compensation for their ever-increasing productivity.
You're all over the map with your arguments, Artie.
Conan the Grammarian at February 8, 2019 7:27 AM
Conan Says:
"That wages are "stagnant" or "have flatlined" was not the argument you were making. The alleged gap between productivity and wages was."
Clearly you have not understood the argument, so let me try and clarify things.
Since ~1970 productivity within the United States has steadily increased.
During that same time frame, wages have remained more or less flat with respect to inflation (i.e., they have stagnated)
Those two observations taken in concert mean that wages and productivity have become decoupled over that time period.
This was in fact the argument I have been making all along:
"Analysis of the economic data shows that wages and productivity became decoupled roughly in 1970"
I am not "all over the map"... my argument is very focused and coherent and has been consistent throughout this entire thread.
There it is above in plain text... it was the very first thing I said.
Since then you have been ranting out the EPI... all the while ignoring whether or not the economic data actually supported or refuted the argument I put forth.
No matter how you slice it, my original argument appears to be dead on based upon quotes and citations from your own chosen economic experts.
You want to focus on whether or not the EPI used the correct combination of deflators to provide robust detail in the analysis... but that is missing the forest for the trees Conan.
The question is whether or not wages have stagnated over a time frame of increased economic productivity... and the answer appears to be a resounding yes.
Artemis at February 8, 2019 2:46 PM
Conan Says:
"The "Great Recession" you mention was in 2008. That's a far cry from the 1970 wage-productivity decoupling you alleged at the beginning of your rant."
I don't think you are really paying attention.
Please read again:
"Two years of decent wage growth does not come close to offsetting the havoc wrought by the Great Recession, much less the previous three decades of stagnating wages."
Your own chosen economic expert has directly stated that wages were stagnant for 3 decades prior to 2008.
Let's do the math shall we?
2008 - 30 = 1978
So how exactly is this a "far cry" from the 1970s???
His direct quote states that wages were stagnant from the 1970s until the great recession in 2008.
This really isn't that difficult to understand.
Artemis at February 8, 2019 2:56 PM
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