Gyroscopic Investing

With the news that Chicago and California are raising the minimum wage to $13 an hour and inflation adjusted thereafter, does this portrend an inflation spiral?

http://www.bloomberg.com/news/2014-12-0 ... b8113a84b4

I wonder what this will mean for all those using SSDI as welfare, which is the most problematic in Appalachian.  At some point it will be more profitable to get a job than remain on the relative pittance from SSI or SSDI.

MachineGhost wrote: With the news that Chicago and California are raising the minimum wage to $13 an hour and inflation adjusted thereafter, does this portrend an inflation spiral?

http://www.bloomberg.com/news/2014-12-0 ... b8113a84b4

I wonder what this will mean for all those using SSDI as welfare, which is the most problematic in Appalachian.  At some point it will be more profitable to get a job than remain on the relative pittance from SSI or SSDI.

No, raising the minimum wage does not cause an "inflation spiral". What it does is reduce the incentive to hire people whose economic output is less than the minimum wage, thus increasing unemployment precisely among those whom it is theoretically supposed to help.

Its a largely political move - to appeal to the Democratic base.  It ultimately hurts the same people that support it, along with small business owners.

Only about 4.3% of workers make the minimum wage (95.7% make more) now, so it will not affect a huge number of workers or substantially drive prices up.  Unfortunately it is a hard hit on small service-oriented businesses (restaurants, small stores, discount stores) who employ the vast majority of these workers. They will see a 57% increase in wage costs!

They will be forced to either cut hours, eat the loss or pass the costs along to consumers.  Most will pass along the costs and also cut hours.

Those lucky enough to keep their job will make a whopping $115 extra a week after taxes (if full time) but most of those will already see their hours cut below 30 hours/week due to Obamacare, and may lose more hours due to the wage hike.

So the people hardest hit will be workers who lose hours or their job (who need them most), small business owners (who are already struggling), and patrons of these small businesses (most of whom are not wealthy).  It won't have a big impact on the wealthy who shop in higher end places - but it will hurt the poor who shop at Walmart.

Ironic - isn't it?

mortalpawn wrote: Its a largely political move - to appeal to the Democratic base.  It ultimately hurts the same people that support it, along with small business owners.

Only about 4.3% of workers make the minimum wage (95.7% make more) now, so it will not affect a huge number of workers or substantially drive prices up.  Unfortunately it is a hard hit on small service-oriented businesses (restaurants, small stores, discount stores) who employ the vast majority of these workers. They will see a 57% increase in wage costs!

They will be forced to either cut hours, eat the loss or pass the costs along to consumers.  Most will pass along the costs and also cut hours.

Those lucky enough to keep their job will make a whopping $115 extra a week after taxes (if full time) but most of those will already see their hours cut below 30 hours/week due to Obamacare, and may lose more hours due to the wage hike.

So the people hardest hit will be workers who lose hours or their job (who need them most), small business owners (who are already struggling), and patrons of these small businesses (most of whom are not wealthy).  It won't have a big impact on the wealthy who shop in higher end places - but it will hurt the poor who shop at Walmart.

Ironic - isn't it?

https://www.cbo.gov/publication/44995

Well not quite...let's just call a spade a spade. It is a government imposed redistribution of income. Unless you believe in a pure laissez-faire world then it would seem there are two choices for government policy. Just flat out pay people for doing nothing (welfare) or make it worth their time to work. One raises your taxes, the other raises your consumption costs. Either way, you pay. Modern history has proven (demonstrated at least) true laissez-faire isn't such a great idea unless you enjoy cool stuff like guillotines, Communism and National Socialism. And I would add this is a factor, but not the factor, of what is going on in the Muslim world right now.

Between the three...I vote the middle road. Make it worth someone's time to work. There are many additional positive societal benefits to working than just the cash changing hands.

Finally, the small business argument. Let's do the math for Joe Small Business. Obamacare sucks so there is no way Joe is going work someone over 30 hours. So to make the math easy let's just peg them all at 25 hours a week. The vast majority of Average Joes has between 1-9 people working for him per the US Census. Let's go out on the edge - average Big Joe...9 folks. Joe is a tyrant so he never let's anyone go on vacation and you must work 25 hours a week or Joe fires you. Lot's of numbers out there for a US minimum wage hike, but let's use $10 an hour.

Employee Hours Annually - 1300
Employees - 9
$$$ - $2.75+ per hour
= Joe's cost of labor goes up - $32,175

Let's add the additional 6.25% SS match
$2011 additional per year

Using a couple of unemployment insurance number estimates at $489 per year per employee and up it by the % of the min wage increase
$1210 additional per year.

So Joe's cost of labor goes up ~$35K a year for 9 employees.

Joe's employees now make $13000 a year minus taxes and social security with their new raise

Average Joe per US tax returns makes somewhere between $28K and $692K (industry dependent) and the average average Joe makes $250K

So since this is all about the averages...each of Joe's employees go from $9425 to $13K a year and Joe goes down to $215K a year...remember this is nothing more than income redistribution

So if Joe is really average, he is taking a hair cut absolutely...but I'm willing to bet he can and will be able to pass some of those costs on so maybe Joe gets a nice trim vice a buzz cut. But really, as much as it sucks for Average Joe he is still above the 95th percentile of all Americans using 2011 data. If Joe is one of  those $28K a year in profits guys, yup he is out of business; but there is a bright lining...Joe 1 can go work for Joe 2 and Joe 3 (50 hours a week) and only be out $2K a year.

I think it is largely a political move - to appeal to the Republican base.

For the record...I'm not a flaming liberal Democrat. In fact, I've never voted for one in my life. I'm more like the utterly disgusted American who is greatly saddened at how shallow and superficial our public discourse is and how dysfunctional our government has become. So, by the tone of my writing above I clearly have an opinion. Anyone who believes the continued downward trend in wages and increasing wealth gap is in anyway good for America or democracy over the long haul...seriously, please spend some more time reading world and economic history. There is a fuzzy threshold that once breached never ends well.

Kbg wrote: For the record...I'm not a flaming liberal Democrat. In fact, I've never voted for one in my life. I'm more like the utterly disgusted American who is greatly saddened at how shallow and superficial our public discourse is and how dysfunctional our government has become. So, by the tone of my writing above I clearly have an opinion. Anyone who believes the continued downward trend in wages and increasing wealth gap is in anyway good for America or democracy over the long haul...seriously, please spend some more time reading world and economic history. There is a fuzzy threshold that once breached never ends well.

There is no downward income trend ala Piketty and I think wages aren't either if all non-wage benefits are included.  The wealth gap is growing, sure, but so long as the bottom grows as well and is better off than 95% of the planet, it's a problem in search of a cure.

I think the transition to post-scarcity is not going to be easy for marginal workers.  There's going to be a heck of lot of unemployment as robots and automation displace them long before we adopt a Citizen's Dividend to deal with it once and for all.

In the short term, our cheap energy will boost employment dramatically due to the manufacturing and industrial reshoring renaissance.  But this may be the very last cycle of traditional labor employment.

Raising the minimum wage is actually probably more likely to cause deflation because it will likely lead to fewer jobs.

From what I understand, bad inflation is unlikely without nearly full employment.

AdamA wrote: From what I understand, bad inflation is unlikely without nearly full employment.

That's actually a myth not supported by historical data.  It's more due to the wage-inflation terms in employment contracts during the 1970's even though it was a period of high unemployment, but the core basis is leftover from the gold standard where there was a correlation between real wages rising (inflation) and employment aka the Phillips Curve.  It can be hard to understand why not under a fiat system since capacity constraints in physical products are naturally inflationary.  But that's the thing, fiat has different end-effects than real.  So in other words, high unemployment won't prevent bad inflation since the core source of inflation isn't from labor.  The 1970's were also different in that nominal wage increases were actually below the rate of inflation, so real wages were not rising at all, and the gap was made further worse by productivity improvements.  So this is why I wonder if there's an inflation spiral analogy with these minimum wage hikes in an attempt to close a real wage gap.  We know that current interest rates don't even cover the rate of inflation, so why not nominal wages?  It just seems all very... stagflationary.

MangoMan wrote: Some additional factors to consider for Joe Small Business Owner:
-There is also a 1.2% medicare tax match.
-There are compliance costs that increase with the number of employees. More part-timers vs less full-timers means more compliance costs in general.
-Not every Joe SBO can just raise prices to recoup additional labor costs. Market forces like competition, demographics, etc., may make raising prices nearly impossible. Also, there are cases where contractual requirements with third-parties make raising prices illegal.

Did you cut your employee hours to 30 a week to avoid Obamacare?  If you have to start paying a $13 minimum wage, what will happen?

Raising minimum wage in places like CA will just make illegal immigration worse and not solve the lower wage issue. This is because CA (and other states) refuse to enforce employment laws. A high minimum wage will just incentivize employers to not hire legal residents and hire more illegals that they can underpay. You need to have the enforcement sword hanging over these guy's heads ready to drop for any kind of minimum wage law to work. If you don't punish employers providing jobs, the higher minimum wage is likely to make the problem worse. You need to have the workplace enforcement be extremely strict to get it to have any chance of working.

If they did aggressively enforce laws against employers they wouldn't need high minimum wages. Wages would would go up on their own when these employers were forced to hire legal citizens that need a better wage to live vs. illegals that pay no taxes or skip out on other ways. The reason why wages are stagnant in many lower end industries is because there is an oversupply of (illegal) labor.

craigr wrote: Raising minimum wage in places like CA will just make illegal immigration worse and not solve the lower wage issue. This is because CA (and other states) refuse to enforce employment laws. A high minimum wage will just incentivize employers to not hire legal residents and hire more illegals that they can underpay. You need to have the enforcement sword hanging over these guy's heads ready to drop for any kind of minimum wage law to work. If you don't punish employers providing jobs, the higher minimum wage is likely to make the problem worse. You need to have the workplace enforcement be extremely strict to get it to have any chance of working.

If they did aggressively enforce laws against employers they wouldn't need high minimum wages. Wages would would go up on their own when these employers were forced to hire legal citizens that need a better wage to live vs. illegals that pay no taxes or skip out on other ways. The reason why wages are stagnant in many lower end industries is because there is an oversupply of (illegal) labor.

Amen. Back to my disgusted American note. The whole minimum wage/immigration thing by the Dems is just so economically cynical/devious/inconsistent...whatever word you want to put there.

MachineGhost wrote:
There is no downward income trend ala Piketty and I think wages aren't either if all non-wage benefits are included.  The wealth gap is growing, sure, but so long as the bottom grows as well and is better off than 95% of the planet, it's a problem in search of a cure.

I think the transition to post-scarcity is not going to be easy for marginal workers.  There's going to be a heck of lot of unemployment as robots and automation displace them long before we adopt a Citizen's Dividend to deal with it once and for all.

Technically you are right on the first, it isn't going down...but would you call this going up??? I wish the just below was in log but it isn't. Go to the real chart. Note that it isn't even a good news story for the Top 5%!

http://www.advisorperspectives.com/dsho ... bution.php

As compared to the below...

http://www.epi.org/publication/unequal-states/

A country and all of its people makes a country...a rising real GDP should get to all of them which the US still has

Kbg wrote: Technically you are right on the first, it isn't going down...but would you call this going up??? I wish the just below was in log but it isn't. Go to the real chart. Note that it isn't even a good news story for the Top 5%!

http://www.advisorperspectives.com/dsho ... bution.php

Household income doesn't include government benefits and/or welfare benefits from the State or Fed.  Once you add in that missing component, the bleak income picture becomes growith-oriented and positive.  I believe these lies of omission in studies such as Piketty's are intentional just to rile up the leftwing loonie base who thrive on constant anti-1%, suspect and lynch all rich people propaganda.  Keep in mind Piketty's book that about 98% of people buy but don't actually read is two sections...  the first part "diagnoses" the "problem" via lies of omission; the second part is the predictable soak the rich response with high marginal income tax rates and asset/wealth taxes.  Since the former is not truthful and the latter has never worked in reality anytime anywhere (i.e. the rich French are fleeing to Portugal as France has territory-based taxation), the furor over the supposed growing inequality is simply doo doo.  It reminds me of Ancel Keys' "saturated fat/cholesterol causes heart disease" shtick by simply omitting all the countries in the world that didn't support his bias.

The reason there isn't more opposition to this garbage is because how can conservatives attack welfare that has improved the standard of living of virtually everyone???  It's against their ideology.  So it gives liberals a free orgasmatron.

Oh, and Piketty is French.  Nothing more need be said!

Now about the unequalness between the states, that is very true.  What is also very true is the poorest states have the lowest minimum wage laws in the country.  How much good is that doing those states when the economic orthodoxy is that higher minimum wages destroy jobs?  Well, reality is saying the opposite and has for a very long time.

My first argument may have been too complex to understand so I'll try a simpler one:

By the law of supply and demand when you raise the price of something (aka labor) you get less of it.  Higher wages means fewer jobs - no matter how much our political leaders and Keynesian's, Krugmans, and Pikettys spin it.  Any time the government steps in and artificially raises the price of something, it damages that market (wages included).

If the government suddenly mandated a 57% tax on bread or gasoline (or set a minimum price for either) people would buy less bread and gas. Why would anyone think the wage market is any different?  As you raise the price of employing someone, businesses will look seriously at alternatives (automatic tellers, iPads to order from your table at the restaurant, hire illegal immigrants, hire people off the books, etc).

That's even if we ignore the secondary effect that people who lose jobs or get their hours cut will now need more government assistance from the minority of us who still work (and my children and grandchildren who will be saddled with our $18T+ in debt).  And more pay will go "black market" and "under the table" as we see in Greece (and much of the world).

Its not that I don't have any "feelings" for those making minimum wage - I worked for $3/hour myself once sweeping floors and mucking garbage.  But that experience motivated me to go to school (including 10 years of night school while working full time and raising kids), and build a better life.  I did not ask for handouts from anyone or ask some politician to give me a %57 raise.

Mortalpawn, have you accounted for the fact that the nomial minimum wage may be under the real minimum wage?  Adjusted for inflation, the minimum wage in 1968 was $10.50, the peak of our prosperity.  So in theory, we could raise it back to that with no ill effect, or can we?