Tuesday, December 17, 2013

Money For Something

While the dust has not yet settled, the city of SeaTac, the location of Seattle-Tacoma International Airport (but not, apparently, much in the way of municipal originality), appears to have passed a ballot proposition to raise the minimum wage for a number of jobs in and around the airport to $15 an hour. This, of course, has ignited all of the usual arguments between the Right and Left, with the attendant charges of unbridled greed, socialism, trampling workers' rights and being ignorant of unintended consequences.

While I've never really been against increases in the minimum wage, I've never really been convinced that it's the solution to the problem that we should be attempting to solve. Right now, the minimum wage is really about protecting vulnerable people against being exploited in a broken economy. But it doesn't make the more vulnerable (namely the unemployed) any less so, nor does it "un-break" the overall economy.

Not being an economist myself, I can't be sure that I have an accurate understanding of the issues, but I think that I've been able to suss out what some of the underlying issues are.

  1. The American Economy is, for the most part, efficient enough to produce enough goods and services to supply the current level of demand (which, it should be noted, is constrained in some sectors) without requiring the whole of the available workforce to work full time. And, despite what John Maynard Keynes, and many others, thought, the standard full-time workweek has not shrunk to below 40 hours. Mainly because since there are certain fixed expenses that accrue with each new employee, it is generally more efficient for an employer to have one person work 40 hours a week, rather than two at 20 hours each.
  2. Much of our economy is based on luxuries, or discretionary purchases - things that people may wish to have, but do not, in a strict sense, "need" to buy. This allows for an increased level of price sensitivity, which, in turn, creates a level of elasticity in the demand for goods and services.
  3. The skills required to do many jobs are commodities or resources themselves, and thus require a certain amount of access to resources to obtain. Additionally, many skills take enough time to obtain that someone who seeks training when a skill is "in demand" may find a glutted market for that same skill when their training is complete.
  4. The overall size of the labor pool is inelastic. It is difficult to impossible for the average person to support themselves outside of the broader economy, and international mobility for Americans to places that offer more opportunities are limited.
Accordingly, the ability to work and make a living has become something of a commodity itself. As a result, people have become expected to compete, and to a degree, expend resources simply to keep themselves clothed, housed and fed. This competition is what drives wages to poverty levels - poor people in need of work wind up competing with one another, and the unemployed, for the limited number of jobs that our current level of aggregate demand will support.

In the end, it's the slack and inelasticity of the labor market that are the problems. And the minimum wage isn't really the answer to this. Instead, it's the semi-solution that causes the least disruption. For now. But unless those issues are solved, the disruptions will come. And, like a lot of things, the longer it's allowed to simmer, the bigger the eventual bang will be.

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