Walmart’s Visible Hand

[Fantastic Anarchist]

http://mobile.nytimes.com/2015/03/02/opinion/paul-krugman-walmarts-visible-hand.html

But labor economists have long questioned this view. Soylent Green — I mean, the labor force — is people. And because workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand.

What’s the evidence? First, there is what actually happens when minimum wages are increased. Many states set minimum wages above the federal level, and we can look at what happens when a state raises its minimum while neighboring states do not. Does the wage-hiking state lose a large number of jobs? No — the overwhelming conclusion from studying these natural experiments is that moderate increases in the minimum wage have little or no negative effect on employment.

More at link ...

[FBaggins]

1. Krugman is wrong on that one

But labor economists have long questioned this view. Soylent Green — I mean, the labor force — is people. And because workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand.

Those two sentences just don't mean anything when put together. Yes... labor "is people"... and yes, the price for "people" does depend on social forces and political power. However... the price for butter (while not "people&quot is also dependent on social forces and political power.

The problem, of course, is that there are always limits to what those forces can achieve in the face of market realities. Labor will always compete with capital and there will always be jobs on the margins that are gained/lost in response to other moves.

Just as the Laffer curve is a very real economic phenomenon (with the problem being that you don't know where you are on the curve until after you change the tax structure)... the impact of an increased minimum wage on employment is also an economic reality. It's just that the impact can be almost nonexistent if other factors fit the decision. Krugman's claim to what the "natural experiments" prove is just as ridiculous as a republican economist claiming that lowering tax rates will increase tax revenue. It has happened... but that doesn't mean that it will always happen. The philosophical experiment is simple to prove... ask him what happens if we raise the minimum wage to $50/hr. Krugman can't pretend that employment wouldn't decline... and rapidly.

At some price point for fast food order takers, it becomes cheaper to replace them with automated kiosks. If you mandate a higher price for that labor, it may have no effect on employment at all... until that mandate hits the balance point between the price of labor and the capital necessary to replace that labor (compared to alternative uses for that capital)... and suddenly you'll have fewer fast food order takers. There are "natural experiments" that prove this as well... just watch where those kiosks pop up first (as they have)... it's almost always where the cost of labor is comparatively high.

[Fantastic Anarchist]

2. You lost me at Laffer Curve.

Of course things go awry when change is radical and drastic. I don't think Krugman is arguing that.

[FBaggins]

3. That's ok... it was secondary to the main point.

Krugman's thesis here is that there's something magical about labor that makes it immune to the economic reality that supply and demand curves shift when price points shift.

Unfortunately, he doesn't really offer real evidence for this claim. One argument is theoretical (that since labor "is people" it's impacted by other factors). That's wrong because labor is in no sense unusual in that regard. The second is anecdotal (that we've raised the minimum wage before without losing jobs) is little different from claims that we've cut tax rates before while watching tax receipts rise.

[1StrongBlackMan]

4. Well ...

Some background: Conservatives — with the backing, I have to admit, of many economists — normally argue that the market for labor is like the market for anything else. The law of supply and demand, they say, determines the level of wages, and the invisible hand of the market will punish anyone who tries to defy this law.

All except for the law of supply and demand, as related to executive compensation ... for non-executive labor the argument goes: at nearly every price point, there is ample supply of workers will and able to do the job for PP-; but that doesn't apply to executive compensation ... they would have us believe that we must pay executive $5,000,000/annum because there are no executives willing and able to do the job for $4,500,000 or $3,000,000.

That is rubbish ... just look to Asia and Europe; the executive compensation is far less and it garners far better results.

[Fantastic Anarchist]

5. Great point.

Funny how market forces never apply to executive compensation. In fact, they get to set their compensation, based on board approval, of course.

[1StrongBlackMan]

6. Actually ...

they do argue "market forces" for executive compensation ... it's just those market forces push the compensation up, as the decision-makers argue, "We tried to negotiate down but s/he just wouldn't accept the post, so we had to bump the offer another $1.5 million, with another $20 million in immediately vesting options!", instead of saying, "We really like you; but, Jane has an equally impressive record and credentials, and our head hunter tells us that she is willing to accept $1.5 Million less AND won't require the options, so good luck in your next opportunity."