3 ms·

One fact many people don't realize is that in order to achieve broad-based wage growth, we will have to face GDP losses. This is because there are many business

One fact many people don't realize is that in order to achieve broad-based wage growth, we will have to face GDP losses. This is because there are many businesses that depend on cheap labor to exist. As wages rise, these businesses will start to fail, reducing GDP. We should see this scenario (wage growth with stagnant or decreasing GDP) as a healthy adaptation. The danger is that politicians will react to the bad GDP numbers with dumb new economic interventions.

sdfghswe 3y ago
> One fact many people don't realize is that in order to achieve broad-based wage growth, we will have to face GDP losses. This is because there are many businesses that depend on cheap labor to exist. As wages rise, these businesses will start to fail, reducing GDP. > We should see this scenario (wage growth with stagnant or decreasing GDP) as a healthy adaptation. The danger is that politicians will react to the bad GDP numbers with dumb new economic interventions. As a European who loves work culture in America, I'm afraid that America is copying the worst aspects of European culture. Europe is awesome, and I'd love to see America copy us more, but these kind of incentives are the wrong thing to be copying. To expand - training and educating yourself is hard work. Why are we rewarding people whose training is being able to drive a van? It's not about it being "honest work" (of course it is) or "hard work" (of course it is), or "these are important jobs, we need someone to do it" (of course) it's about - do we want to incentivize that young people aspire to this? This is not a recipe for a winning country.
- Volundr 3y ago
  > do we want to incentivize that young people aspire to this? Honest question, why not? Someone has to do it for society to function. We can't all be software engineers and CEOs, why shouldn't the person driving the UPS truck feel satisfied with their accomplishments instead of constantly being told they are doing it because they either didn't put in the work to "better themselves" or couldn't hack it, as certain parts of our society currently seem to do when it comes to "unskilled labor"?
- foogazi 3y ago
  The incentive is we need e-commerce and packages delivered to the last mile Apparently there’s enough money there to pay for the merchandise and the delivery driver Compare against the cost of running physical retail operations and getting people through the door - the people have voted with their wallets
MontyCarloHall 3y ago
Yup. Few people talk about fair wage rebalancing as a driver of inflation, but it's inevitable if the bulk of wage growth goes disproportionately to low earners who produce widely consumed goods/services, whose prices were deflated due to low wages. As an extreme example, suppose all farmers were unpaid slaves. Slavery gets outlawed, and farmers now get paid. Food prices rise dramatically, resulting in massive inflation overall (and thus a fall in real wages for everyone except farmers).
- jewayne 3y ago
  But what if those prices weren't deflated at all by the low wages? What if instead of passing their low costs onto the consumer, businesses were just pocketing the difference instead, because prices weren't really based upon the costs to produce the good/service, but on the consumers' ability to pay. In other words, raising wages would have little to no affect on prices. I'm describing a non-competitive market, which of course also describes the majority of the American economy today.
culi 3y ago
This is proven false. When more people are given more money, they spend more on average [0] https://www.epi.org/publication/bp357-federal-minimum-wage-increase/ https://www.epi.org/publication/bp357-federal-minimum-wage-i... [1] https://www.nber.org/system/files/working_papers/w25761/w25761.pdf https://www.nber.org/system/files/working_papers/w25761/w257... This is why—despite what your econ 101 models might lead you to believe—modern, data-driven economic research suggests that increases in the minimum wage almost always lead to increased GDP. Worth noting that there's also many other effects that may contribute to this observed impact[2] [2] https://www.piie.com/blogs/realtime-economic-issues-watch/higher-wages-low-income-workers-lead-higher-productivity https://www.piie.com/blogs/realtime-economic-issues-watch/hi...
- MontyCarloHall 3y ago
  The studies you link to only consider effects of raising the federal minimum wage. While their conclusions may be valid, minimum wage workers only constitute a tiny fraction (~1%) of the labor market. It is unclear how well the studies' conclusions would extrapolate beyond minimum wage workers.
  - catboybotnet 3y ago
    Is that min. wage workers working at the min. wage, or workers within the min. wage zone? Fed. min. wage means jack all when states have their own, which is what we should be looking at.
    - culi 3y ago
      The first study looks at federal > Increasing the federal minimum wage to $10.10 by July 1, 2015, would raise the wages of about 30 million workers, who would receive over $51 billion in additional wages over the phase-in period. > Across the phase-in period of the minimum-wage increase, GDP would increase by roughly $32.6 billion, resulting in the creation of approximately 140,000 net new jobs (and 284,000 job years) over that period. 30 million out of 156 million workers is ~19.2% of the workforce. Not nothing and not to mention the knock-on effects it'll have for workers just barely above that The second link specifically analyzes both localized and federal minimum wage increases and explicitly tackles the question "Are the Effects Bigger When More Workers are Affected?" > The pattern of results for nominal consumption growth are similar—the direct spending response is somewhat stronger than when we do not control for the share of low-wage workers across locations, and there is evidence of a small but positive differential effect in areas with a higher share of low-wage workers The third is a collection of research looking at wage increases in general, not just minimum wage (contrary to OP's comment)

sdfghswe 3y ago

> One fact many people don't realize is that in order to achieve broad-based wage growth, we will have to face GDP losses. This is because there are many businesses that depend on cheap labor to exist. As wages rise, these businesses will start to fail, reducing GDP. > We should see this scenario (wage growth with stagnant or decreasing GDP) as a healthy adaptation. The danger is that politicians will react to the bad GDP numbers with dumb new economic interventions. As a European who loves work culture in America, I'm afraid that America is copying the worst aspects of European culture. Europe is awesome, and I'd love to see America copy us more, but these kind of incentives are the wrong thing to be copying. To expand - training and educating yourself is hard work. Why are we rewarding people whose training is being able to drive a van? It's not about it being "honest work" (of course it is) or "hard work" (of course it is), or "these are important jobs, we need someone to do it" (of course) it's about - do we want to incentivize that young people aspire to this? This is not a recipe for a winning country.

Volundr 3y ago
> do we want to incentivize that young people aspire to this? Honest question, why not? Someone has to do it for society to function. We can't all be software engineers and CEOs, why shouldn't the person driving the UPS truck feel satisfied with their accomplishments instead of constantly being told they are doing it because they either didn't put in the work to "better themselves" or couldn't hack it, as certain parts of our society currently seem to do when it comes to "unskilled labor"?
foogazi 3y ago
The incentive is we need e-commerce and packages delivered to the last mile Apparently there’s enough money there to pay for the merchandise and the delivery driver Compare against the cost of running physical retail operations and getting people through the door - the people have voted with their wallets

MontyCarloHall 3y ago

Yup. Few people talk about fair wage rebalancing as a driver of inflation, but it's inevitable if the bulk of wage growth goes disproportionately to low earners who produce widely consumed goods/services, whose prices were deflated due to low wages. As an extreme example, suppose all farmers were unpaid slaves. Slavery gets outlawed, and farmers now get paid. Food prices rise dramatically, resulting in massive inflation overall (and thus a fall in real wages for everyone except farmers).

jewayne 3y ago
But what if those prices weren't deflated at all by the low wages? What if instead of passing their low costs onto the consumer, businesses were just pocketing the difference instead, because prices weren't really based upon the costs to produce the good/service, but on the consumers' ability to pay. In other words, raising wages would have little to no affect on prices. I'm describing a non-competitive market, which of course also describes the majority of the American economy today.

culi 3y ago

This is proven false. When more people are given more money, they spend more on average [0] https://www.epi.org/publication/bp357-federal-minimum-wage-increase/ https://www.epi.org/publication/bp357-federal-minimum-wage-i... [1] https://www.nber.org/system/files/working_papers/w25761/w25761.pdf https://www.nber.org/system/files/working_papers/w25761/w257... This is why—despite what your econ 101 models might lead you to believe—modern, data-driven economic research suggests that increases in the minimum wage almost always lead to increased GDP. Worth noting that there's also many other effects that may contribute to this observed impact[2] [2] https://www.piie.com/blogs/realtime-economic-issues-watch/higher-wages-low-income-workers-lead-higher-productivity https://www.piie.com/blogs/realtime-economic-issues-watch/hi...

MontyCarloHall 3y ago
The studies you link to only consider effects of raising the federal minimum wage. While their conclusions may be valid, minimum wage workers only constitute a tiny fraction (~1%) of the labor market. It is unclear how well the studies' conclusions would extrapolate beyond minimum wage workers.
- catboybotnet 3y ago
  Is that min. wage workers working at the min. wage, or workers within the min. wage zone? Fed. min. wage means jack all when states have their own, which is what we should be looking at.
  - culi 3y ago
    The first study looks at federal > Increasing the federal minimum wage to $10.10 by July 1, 2015, would raise the wages of about 30 million workers, who would receive over $51 billion in additional wages over the phase-in period. > Across the phase-in period of the minimum-wage increase, GDP would increase by roughly $32.6 billion, resulting in the creation of approximately 140,000 net new jobs (and 284,000 job years) over that period. 30 million out of 156 million workers is ~19.2% of the workforce. Not nothing and not to mention the knock-on effects it'll have for workers just barely above that The second link specifically analyzes both localized and federal minimum wage increases and explicitly tackles the question "Are the Effects Bigger When More Workers are Affected?" > The pattern of results for nominal consumption growth are similar—the direct spending response is somewhat stronger than when we do not control for the share of low-wage workers across locations, and there is evidence of a small but positive differential effect in areas with a higher share of low-wage workers The third is a collection of research looking at wage increases in general, not just minimum wage (contrary to OP's comment)