Monday, August 07, 2006

Time For A Nap: Some Economic News

Invest in the petroleum industry:

Oil surged above $77 a barrel in Europe as BP began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world's oil, ran high.

We'll see what happens to gas prices at your local pump.

One group that might have trouble with the new higher gas prices are those who earn minimum wages in the U.S., the people that one wingnut talking-head called pure unadulterated losers

If you are a grown adult in this country who is not suffering from some hideous physical or mental disability, and you are trying to raise children on the minimum wage, then you are a 100 percent pure unadulterated loser. And I am so sick and damned tired of all those left-wing bedwetters and sympathy pimps out there -- passing -- just moaning over these people who have squandered their American birthright by becoming just the dregs of socie[ty]-- and then -- I'm just so sick of it I could scream. OK, calm down.

But how would these pure unadulterated losers get to their minimum wage jobs if the old bangers of a car they have don't have any gas and if public transportation is as alive as a dodo where they live?

Self-discipline, would be the wingnut stock answer. Or perhaps levitation. But raising the minimum wage is another option, and one that most economists have come to view in a favorable light:

Prominent economists of all ideological persuasions long believed that raising the U.S. minimum wage would retard job growth, creating unintended hardship for those at the bottom of the ladder.

Today, that consensus is eroding, and a vigorous debate has developed as some argue that boosting the wage would pull millions out of poverty.

A moderate increase in the minimum wage won't raise unemployment among low-skilled workers, according to recent studies, many economists say. They are joined by some business executives who say they can live with that, especially if it's coupled with tax relief.

``My thinking on this has changed dramatically,'' says Alan Blinder, a former Federal Reserve vice chairman who teaches economics at Princeton University in Princeton, New Jersey. ``The evidence appears to be against the simple-minded theory that a modest increase in the minimum wage causes substantial job loss.''

The debate over how to help struggling American workers was at the center of a battle in Congress last week over whether to increase the federal minimum wage to $7.25 an hour by 2009 from the current $5.15. The measure failed after Democrats objected that the wage increase had been linked to a plan to roll back the federal estate tax for many multimillion-dollar estates.

Mmm. Horrible Democrats, not to want to help the suffering multimillion-dollar estates.

Why might raising the minimum wage not have much of an effect on unemployment? This goes against the conventional wisdom that raising the price of something will reduce its demand. But the conventional wisdom is based on a particular model of the labor markets with all sorts of assumptions, one of those being that the wage rate in itself doesn't affect worker productivity. But what if it does?

Suppose that the initial wage rate is very low. So low that it's hard to survive on it, hard to both eat well and to fill the gas tank of the old lemon you use to drive to work. So low that the worker spends a lot of time juggling financial problems.

If this low wage rate is raised, the worker just might be able to eat better, sleep better and be healthier. Healthier workers might work harder. And workers who are paid more might feel more pride in their work and have greater concerns for its quality. Greater productivity might result, and this means that the employers would be getting more work for the raised wage.

It could also be the case that the initial study finding little job loss after a rise in the minimum wage was incorrect. But the alternatives are worth looking at.

Ok. This is the last economics post from me for the duration of the guest blogging. Promise.